February 10, 2012
Office of the Comptroller of the Currency Elizabeth M. Murphy, Secretary 250 E Street, S.W. Securities and Exchange Commission Mail Stop 2-3 1500 Pennsylvania Avenue, N.W. Washington, D.C. 20219 Washington, D.C. 20220 Docket No. OCC-2011-0014 RIN 3235-AL07 RIN 1557-AD44 File No. S7-41-11
Jennifer J. Johnson, Secretary David A. Stawick, Secretary of the Commission Board of Governors of the Federal Reserve System Commodities Futures Trading Commission 20th Street & Constitution Avenue, N.W. Three Lafayette Centre Washington, D.C. 20551 1155 21st Street, NW Docket No. R-1432 Washington, DC 20581 RIN 7100 AD 82 RIN: 3038-AD05
Robert E. Feldman, Executive Secretary Federal Deposit Insurance Corporation 550 17th Street, N.W. Washington, D.C. 20429 Attention: Comments RIN 3064-AD85
Re: Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds
Dear Ladies and Gentlemen:
The National Trust for Historic Preservation ("National Trust") and the Historic Tax Credit Coalition ("HTCC") are pleased to have the opportunity to respond to the Notice of Proposed Rule Making request for public input related to the implementation of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the so-called "Volker Rule." We have chosen to respond to questions 276-280 to demonstrate our unconditional support for Section 619, which clarifies the definition of "public welfare" investments to explicitly include federal and state historic tax credit equity investments.
The National Trust (www.PreservationNation.org) is a privately-funded, federally-chartered, nonprofit organization that works to save America's historic places for the next generation. It is committed to protecting America's rich cultural legacy and to helping build vibrant, sustainable communities that reflect our nation's diversity. The National Trust takes direct action to save the places that matter while bringing the voices of the preservation movement to the forefront nationally.
The HTCC (www.historiccredit.wordpress.com) is a group of historic tax credit industry representatives who have come together to help develop a consensus on ways to modernize the federal Historic Tax Credit (HTC). Its members are tax credit syndicators, investors, tax attorneys, accountants, preservation consultants and real estate developers who are involved in the business of using the HTC as a financing tool to promote economic development through the rehabilitation of historic properties. The HTCC's
1 | Page activities include research on the economic impact of the HTC, the development of legislative and regulatory proposals to promote the simplification and greater use the HTC, and efforts to foster greater communication between the National Park Service, the Internal Revenue Service and the HTC industry.
Question 276 - Is the proposed rule's approach to implementing the SBIC, public welfare and qualified rehabilitation investment exemption for acquiring or retaining an ownership interest in a covered fund effective? If not, what alternative approach would be more effective?
The National Trust and HTCC strongly endorse the definition of a public welfare investment as stated in Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Banks have been significant investors over the years in federal and state historic tax credits. These lending institutions have consistently sought Part 24 approval (or equivalent approval depending on their federal regulator) as well as CRA credit for these investments. Historic tax credit syndicators who are members of the HTCC have reported that under previous, stricter definitions of public welfare investments, lenders have been uncertain of whether regulators would approve these investments under Part 24, necessitating a deal-by- deal inquiry.
Question 277 - Should the approach include other elements? If so, what elements and why? Should any of the proposed elements be revised or eliminated? If so, why and how?
The National Trust and HTCC support the continued inclusion of the federal Historic Tax Credit and state Historic Tax Credits (HTC) in the definition of public welfare investments. As elaborated in more detail in the answers to Q278-280 below, the data show that these federal and state investments have a proven track record of promoting economic development, creating jobs and revitalizing residential and commercial neighborhoods in urban, rural and small town communities across the nation.
Based on research conducted for the HTCC by Rutgers University's Center for Urban Policy Research (attached), the federal HTC, over the past 32 years, has leveraged $90.4 billion in private sector investments to help rehabilitate over 37,000 historic properties. At a total federal cost of $17.5 billion, the leverage ratio is approximately 5-1. Rutgers research has further shown that federal HTC investments have been responsible for creating 2 million jobs, $30.6 billion in federal, state and local taxes, $76.3 billion in household and business income, and generating gross domestic product of $103.8 billion. 1
These estimates measure impacts only through construction completion and do not include jobs, income and tax impacts generated after historic properties are placed in service, nor the economic impacts of heritage tourism often associated with these historic sites. These findings are estimated through the use of an input-output model called the Preservation Economic Impact Model (PEIM) developed for the National Park Service by Rutgers University. It is the only economic impact model that is adapted to measure the economic benefits of historic rehabilitation.
Even though federal and state HTCs are not targeted to qualified low-income census tracts, because many historic properties are located in inner-cities, there is a high degree of correlation between the location of these investments and communities in economic distress. Research by the National Trust's tax credit subsidiary, National Trust Community Investment Corporation (NTCIC), has shown that between 2002 and 2008 two-thirds of all federal HTCs have been invested in census tracts eligible for the new markets
1 "Second Annual Report on the Economic Impact of the Federal Historic Tax Credit", (May 2011), Summary Exhibit 1, page 11.
2 | Page tax credit.2 Further research by NTCIC indicates that, in the first 4 rounds of the NMTC program, 10% of all NMTC transactions and 20% of the dollar volume of NMTC transactions twinned historic and new markets tax credits.3 State historic tax credits have similar impacts on low-income communities because they are almost always twinned with federal HTCs.
Rutgers research and the work of economist Donavan Rypkema both conclude that historic rehabilitation is a more efficient producer of jobs than new construction.4 Rehabilitation is more labor intensive than new construction and, for some trades, requires hiring more skilled, higher wage labor. Because materials for rehabilitation are purchased primarily in the local market, on average, 75% of the economic impact of historic property redevelopment stays in the local economy.
Historic rehabilitation is an inherently green activity. Recycling old buildings reduces landfill waste and saves energy by reusing existing materials rather than manufacturing new building components such as doors, windows, roofing and framing. Reusing existing buildings typically offers environmental savings over demolition and new construction - even if that new construction is energy-efficient.5 Rehabilitation is also an outstanding smart growth strategy, channeling public and private resources into existing communities supported by roads, utilities, schools and sewage facilities. Historic buildings have the unique ability to foster a sense of place which helps differentiate central business districts and small town centers and give them a market advantage.
Because of the proven community revitalization, job creation, smart growth and green benefits noted above, the National Trust and HTCC believe that all federal and state HTC equity investments should remain exempt from the Volker Rule and included in the definition of public welfare investments.
Question 278. Should the proposed rule permit a banking entity to sponsor an SBIC and other identified public interest investments? Why or why not? Does the Agencies' determination under section 13(d)(1)(J) of the BHC Act regarding sponsoring of an SBIC, public welfare or qualified rehabilitation investment effectively promote and protect the safety and soundness of banking entities and the financial stability of the United States? If not, why not?
The National Trust and the HTCC believe the proposed rule does and should promote banking entities to sponsor historic rehabilitation through federal and state HTCs by forming tax credit funds to make multiple investments. The National Trust Community Investment Corporation has long-standing investor relationships with Bank of America, US Bank, PNC, SunTrust, Citibank, Trustmark Bank, Key Bank and Capital One to invest primarily in twinned historic and new markets transactions that span over a decade of investment activity totaling over $437 million in equity investments and new markets leveraged debt. These investments have had broad, demonstrable, economic impacts in communities of additional distress as defined by the US Treasury's CDFI Fund including the creation of 26,347 direct, indirect and induced jobs and the generation of $112.8 million in state and local taxes, $1billion in household and business
2 HTC census tract data analyzed for a presentation by National Trust Community Investment Corporation, "Utilizing Historic Tax Credits to Rehabilitate Historic Buildings", (2008). 3 HTC and NMTC twinned transaction data based on results from "Survey of CDEs that Regularly Invest in HTC/NMTC Transactions", National Trust Community Investment Corporation, (November 2007). 4 Donovan Rypkema, "The Economics of Historic Preservation: A Community Leader's Guide", Washington, D.C. National Trust for Historic Preservation (2005), page 14. 5 National Trust for Historic Preservation, "The Greenest Building: Quantifying the Environmental Value of Building Reuse", (2012).
3 | Page income and $1.23 billion in gross state product. All of these investments have been deemed eligible for CRA credit on projects that, but for the historic tax credits, would never have been completed.6
Federal and state historic tax credits have proven to be safe and sound investments for a cross section of banking, manufacturing and insurance companies over the years. The attached study commissioned by the National Trust, conducted by Novogradac and Company, and released this month shows the federal HTC has outperformed secured commercial loans between 2001-2010. The cumulative 10-year federal HTC recapture rate has been less than three quarters of one percent (.73%). The electronic survey was conducted over the past 3 months. Respondents included investors representing over 50% of federal HTC investment volume and a total of 653 transactions. Out of the 653 transactions, there were only 7 incidents of recapture. Of the total of $3 billion in HTC investments made by the survey respondents, the dollar amount of recapture was only $22 million. By comparison, annualized commercial loan defaults over the same period were 1.02% of invested capital. While there is insufficient data to convert the HTC 10-year cumulative recapture rate to an annualized number, data obtained from the IRS forms for 2008 indicates that the rate of HTC recapture for 2008 was .07%. 7
The attached report attributes the stellar performance of historic tax credit investments to several factors including (1) careful underwriting and the application of strict underwriting criteria by HTC investors to these equity investments, (2) the size of these third-party nongovernment investments (typically in excess of $1 million dollars) which leads investors to carefully review these transactions, (3) the development of standardized legal structures and asset management procedures to protect these investments over the five- year compliance period, (4) construction and lease-up risk borne by private developers and investors which generates a high level of monitoring and asset management oversight and (5) regulatory guidance from the IRS. 8
In the opinion of the National Trust and the Historic Tax Credit Coalition, and based on the study results, the proposed rule supports the safety and soundness of the banking system by encouraging banks to make equity investments in historic rehabilitation projects.
Question 279. What would the effect of the proposed rule be on a banking entity's ability to sponsor and syndicate funds supported by public welfare investments or low income housing tax credits which are utilized to assist banks and other insured depository institutions with meeting their Community Reinvestment Act ("CRA") obligations?
The proposed rule helps banks meet their CRA obligations by encouraging historic rehabilitation which, in most instances, can meet lender obligations under the Community Investment Act. Clearly not every HTC investment meets one or more of the tests for qualification under CRA. There are no existing data on this point. But we believe, from the data included above, that the majority of HTC projects do qualify. We know from available data that two-thirds of these investments occur in qualified low income census tracts. In addition to the data discussed above on the twinning of HTCs and NMTCs, NTCIC has determined from a 2011 state-by-state survey of allocations of low-income housing tax credits (LIHTC) that approximately 6% of LIHTC transactions (approximately $425 million in credits) twinned the HTC
6 National Trust Community Investment Corporation, Internal Report, (2012). 7 National Trust for Historic Preservation and Novogradac & Company, "Historic Rehabilitation Tax Credit Recapture Survey", (February 2012). 8 Ibid.
4 | Page Based on the data cited above, the National Trust and the HTCC believe there is a high degree of correlation between projects that utilize federal and state HTCs and transactions that help banks meet their CRA obligation.
Question 280. Does the proposed rule unduly constrain a banking entity's ability to meet the convenience and needs of the community through CRA or other public welfare investments or services? If so, why and how could the proposed rule be revised to address this concern?
The National Trust and IITCC believe that the proposed rule assists rather than constrains banking institutions in meeting their CRA obligations by creatively using federal and state historic tax credits in combination with other federal incentives to meet the needs of low-income communities.
Vice President for Government Relations & Policy Chairman National Trust for Historic Preservation Historic Tax Credit Coalition
5 | Page Historic Rehabilitation Tax Credit Recapture Survey
COMMISSIONED BY THE NATIONAL TRUST FOR HISTORIC PRESERVATION
NATIONAL TRUST FOR HISTORIC PRESERVATION
CERTIFIED PUBLIC ACCOUNTANTS Historic Rehabilitation Tax Credit Recapture Survey
THE NATIONAL TRUST FOR HISTORIC PRESERVATION AND NOVOGRADAC & COMPANY LLP WISH TO ACKNOWLEDGE THE CONTRIBUTIONS AND ASSISTANCE OF JEROME BREED OF BRYAN CAVE INTERNATIONAL CONSULTING LLC; WILLIAM MACHEN OF HOLLAND & KNIGHT LLP; AND FORREST MILDER OF NIXON
PEABODY LLP IN THE PREPARATION OF THIS REPORT.
On the Cover: The White Stag Block, Portland, Oregon. The 133,000-square-foot facility, built between 1892 and 1907, merges three buildings retaining the historic features that facilitated the use of historic rehabilitation tax credits and new markets tax credits.
2 Historic Rehabilitation Tax Credit Recapture Survey
EXECUTIVE SUMMARY
The National Trust for Historic Preservation commissioned this study to determine the frequency and amount of recapture that investors have experienced with the federal historic rehabilitation tax credit (HRTC). The study was conducted using an on-line survey of a group of HRTC investors that have made significant investments. Survey respondents consist of large institutional investors, including national banks and Fortune 500 companies that make direct and indirect investments in HRTC transactions.
Collectively, the survey's respondents have invested in more than 50 percent of the HRTCs claimed during the past 10 years and their responses demonstrate that they have experienced very low rates of recapture during the past 10 years. Respondents indicate that of the total HRTCs claimed, they have experienced a recapture rate of less than three-quarters of one percent over the past 10 years. This successful track record can be attributed to several factors: large dollar investments from third parties; careful screening of properties before development by third-party investors; economies of scale and uniform practices; construction and lease-up risk borne by investors and developers; and regulatory guidance and enforcement by the Internal Revenue Service.
r CASA de Maryland 8151 15th Avenue, Langley Park, MD
Property and Project Details Originally named Langley Park, the three-story Georgian Revival McCormick-Goodhart Mansion was constructed in 1924 as a private residence, the grand centerpiece of a 565-acre estate. Following the death of its owners, the mansion became a seminary, a Montessori school and finally a child-care center before sitting vacant for years. CASA, the largest Latino and immigrant service organization in Mary- land, acquired the building for $1 in 2001 with the vision to expand beyond its primarily Latino-focused outreach to meet the needs of the area's increasingly diverse immigrant community. With the purchase of the building, CASA began a certified historic rehab to convert the mansion into a multicultural center. Since its open- ing in June 2010, the center has been providing a variety of services including financial and computer literacy education, a justice center for pursuing immigrant legal and civil rights, job placement and a cafeteria for food service industry training.
The scope of renovation included restoration of the exterior and most of the existing historic interior that used $963,384 in federal historic tax credits as well as new markets tax credits, Maryland state historic tax credits and federal energy tax credits. The project obtained LEED Gold status for green design elements. V.
3 Historic Rehabilitation Tax Credit Recapture Survey
THE HISTORIC REHABILITATION TAX CREDIT INTRODUCTION sector investment by providing an alternative Federal tax incentives for historic rehabilitation to government ownership and management of have rehabilitated more than 37,000 historic historic properties, creating jobs and renewed properties since 1978, restoring old, deteriorating commerce to the historic cores of cities and towns, buildings to commercial viability.1 Over the past increasing property values in these areas, and 34 years, the HRTC has leveraged more than $90 helping create additional alternatives for affordable billion in private investment toward the restoration housing. Pictures of successful projects have been of historic buildings, while at the same time creating included throughout this report to help illustrate more than two million jobs.2 It has revitalized the versatility of the HRTC. distressed areas through the fostering of private
Cleveland Institute of Art McCullough Center 11610 Euclid Avenue, Cleveland, OH
Property and Project Details Located in University Circle, just east of downtown Cleveland, the 168,000-square-foot building constructed in 1913 is listed on the National Register of Historic Places. It was built by Ford Motor Company in 1913 as a Model T assembly plant, and was acquired by The Cleveland Institute of Art in 1981. The $32 million McCullough Center renovation includes a much-needed upgrade to building systems and infrastructure, such as heating, cooling, electrical and roofing. It also includes an interior redesign that will add 7,000 square feet of space. Phase II of the project began in 2011 with construction of an adjoining facility that will allow the Institute to vacate its other building seven blocks away and consolidate operations at McCullough Center. When complete, the project will permit enrollment to expand up to 20 percent above the current 500 students per year.
The renovation will also restore many of the building's historic features while making McCullough Center a showcase for the latest innovations in green building techniques. It is designed to meet Silver LEED (Leadership in Energy and Environmental Design) Certi- fication, which is awarded by the U.S. Green Building Council to structures that achieve superior environmental performance. Interior workstations will also utilize wood from demolished Cleveland-area homes.
Total funding for the $47.5 million facility included $5.25 million in federal historic tax credits. Other financial incentives were federal new markets tax credits and Ohio state historic tax credits.
1 National Trust for Historic Preservation, Rehabilitation Tax Credit Guide. 2 Second Annual Report on the Economic Impact of the Federal Historic Tax Credit, The Historic Tax Credit Coalition, Rutgers -Edward J. Bloustein School of Planning and Public Policy, May 2011, Page 5. Historic Rehabilitation Tax Credit Recapture Survey
LEGISLATION the most sweeping changes in real estate taxation Federal tax incentives for historic rehabilitation that have occurred since the adoption of the modern originally began as part of the Tax Reform Act of tax code in 1954. That Act instituted limitations on 1976 (TRA '76). Prior to 1976, the Internal Revenue the ability of investors (generally individuals and Code (IRC) provided no targeted incentives for closely held C corporations) to use losses or credits rehabilitating historic or aged buildings. generated by passive investments (including real estate),3 and lengthened depreciable lives for both Legislation for historic rehabilitation tax incentives regular and alternative minimum tax. can be segregated into four distinct periods: TRA '76, the Revenue Act of 1978, the Economic The changes contained in TRA '86 also provide Recovery Tax Act of 1981, and the Tax Reform Act what are essentially the rehabilitation tax credit of 1986 (TRA '86). Current rehabilitation tax credit rules that are in place today. TRA '86 amended IRC legislation was passed as IRC Section 48(g) in TRA Section 48(g) by repealing the 15 percent and 20 '86, and subsequently was re-designated to IRC percent credits and replacing both with a 10 percent Section 47 in the Revenue Reconciliation Act (RRA) credit for qualified rehabilitation expenditures for of 1990. Treasury Regulations are promulgated in buildings first placed in service before 1936, and by sections 1.47, 1.48 and 1.50. replacing the 25 percent credit with a 20 percent credit for qualified rehabilitation expenditures for TRA '86 changes to the IRC also ushered in some of certified historic structures.
Historic Sears Building 32-40 East Granite Street, Butte, MT
Property and Project Details The Historic Sears Building is located in the Butte- Anaconda National Historic Landmark District. The steel-frame masonry building is five stories on the front and four stories on the side and rear. In preparation for the occupancy by Sears, Roebuck and Company in 1941, major alterations were undertaken on the first floor, including the addition of a "modern" storefront. In the late 1970s and early 1980s, Sears left this location as the area's mines closed. The Historic Sears Building was left to deteriorate, and eventually was taken by the city and county of Butte-Silver Bow (the city) for back taxes. In June 1993, the city performed a structural evaluation of the building. As a result of the study, the building was sealed and stabilized, and a new roof installed in 1994. The property remained vacant until 2006 when the city began to seek out proposals for redevelopment.
Kujawa Development LLC, led by Butte native Nick Kujawa, led the $9.1 million renovation with the goal of revitalizing not just the building but the entire neighborhood. The Sears Building opened in late 2010 and its mix of retail and housing harkens back to the historic boom times of the mining city, but with a sleek, modern feel. The project flourished as a result of $1,566,240 in federal his- toric tax credits as well as federal new markets tax credits and Montana state historic tax credits.
3 Internal Revenue Code Section (IRC §) 469. All references are to the Internal Revenue Code of 1986, as amended.
5 Historic Rehabilitation Tax Credit Recapture Survey
4 OVERVIEW OF HRTC of 20 percent (HRTC)5 of all qualified rehabilitation The rehabilitation tax credit is an indirect federal expenditures on any building that is a certified subsidy used to finance the rehabilitation of historic historic structure. A certified historic structure is and older buildings. Eligible taxpayers receive the defined as a building listed in the Department of incentive by claiming an investment tax credit on the Interior's National Register of Historic Places, their federal income tax returns. The rehabilitation or located in a National Register historic district tax credit generally offsets taxes dollar-for-dollar and certified by the Secretary of the Interior as because it is a tax credit, not a tax deduction. The contributing to the significance of the district. rehabilitation tax credit was created as an incentive for private developers and investors to restore older After the rehabilitation expenditures are placed in and historic buildings to productive use. service, the building must remain in productive use and the entity owning the building must not The rehabilitation tax credit is generally claimed sell the property for a period of five years from the in the year the rehabilitation of the underlying date it was placed in service. building is placed in service. The credit is two-tiered: a credit of 10 percent for all qualified rehabilitation In order to qualify for the HRTC, a building must expenditures on any qualifying rehabilitation of a be a qualified rehabilitated building (QRB). To building that was first placed in service before 1936 be considered a QRB, a building must meet four and is not a certified historic structure, or a credit tests. First, the building must be "substantially
r The International Civil Rights Center and Museum 134 South Elm Street, Greensboro, NC
Property and Project Details The International Civil Rights Center and Museum (ICRCM) in Greensboro, N.C. is located in the restored F.W. Woolworth building where the famous Greensboro Four sit-in took place. The 45,000-sqaure-foot museum com- memorates the U.S. civil rights movement. Acquisition and construction financing for the $8 million project included various private equity sources, funding from state and federal historic tax credits and new markets tax credits and a $150,000 federal challenge grant from Save America's Treasures. The historic 1929 F.W. Woolworth Building was destined to become a parking lot in 1993 but thanks to the vision of a group of local leaders who came together to form the nonprofit Sit-In Movement, Inc. to purchase the historic store, restore it, and reuse it as a state-of-the-art museum and educational center, the ICRCM opened on February 1, 2010, the 50th anniversary of the sit-in. Architectural elements, including the lunch counter, art deco staircase, plaster coffered ceiling and terrazzo floors, have been restored to form the framework and nucleus of the exhibits at the ICRCM. The design team worked with the North Carolina State Historic Preservation Office it identify significant building elements that would be restored. V /
4 The overview of the HRTC is not intended to be a comprehensive technical discussion of all the rules and regulations. For a more in-depth look at the technical aspects of the HRTC, see Novogradac & Company LLP's Historic Rehabilitation Handbook, 2009. 5 This study only surveyed investors regarding their recapture experience with the 20 percent historic rehabilitation tax credit.
6 Historic Rehabilitation Tax Credit Recapture Survey
rehabilitated."6 Second, the building must have Interior's Standards for Rehabilitation. been placed in service before the beginning of the rehabilitation.7 Third, depreciation (or amortization On completion of the rehabilitation work, the in lieu of depreciation) must be allowable with owner completes and submits a Part 3 application respect to such building.8 Fourth, the building - Request for Certification of Completed Work. must be located in the United States or in a territory The NPS determination on Part 3 is the final word or possession of the United States.9 on whether the project does in fact qualify as a certified rehabilitation for purposes of the HRTC. Once the historic project has been identified, the For approved projects, NPS sends a copy of the Part taxpayer submits an application to the State Historic 3 application to the IRS and the taxpayer is eligible Preservation Office (SHPO) or directly to the to claim credits on the project. National Park Service (NPS) for buildings located in those states that do not have a SHPO. The Part 1 While both the NPS and the SHPO administer the application makes the case for nominating a building application and approval process of the federal to the National Register. If the building is already on HRTC, the Internal Revenue Service (IRS) also the Register or is listed as contributing to a National plays an important and integral role in the federal Register historic district, Part 1 documents this HRTC program. The following is a discussion of the status. The Part 2 application describes the planned responsibilities of the NPS, the SHPO and the IRS. rehabilitation and how it meets the Secretary of f Historic Park Inn 15 West State Street, Mason City, IA
Property and Project Details The Historic Park Inn, built in 1906, is the last remaining Frank Lloyd Wright-designed hotel in the world. Care had been taken to respect the signifi- cance of The Historic Park Inn Hotel, but sub- stantial reinvestment in the building had not been undertaken and the structure continued to decline and become vacant, hastening its deterioration. After the Mason City City Council requested volunteers to lead the renovation of the building, originally two structures — one housing a bank and law offices, the other a hotel — a local citizens' group formed Wright on the Park Inc., a not-for-profit entity whose mission was to own, preserve and maintain the hotel. The inn, located in a distressed census tract, reflected the challenges of the mid-2000s, a declining economy and the need to encourage reinvestment and entrepreneurism. Its owners say that completion on the restora- tion of The Historic Park Inn Hotel created a framework for the community to establish pride and sense of place, and stimulated by the restoration of the Historic Park Inn Hotel & City National Bank Building project, the city has recommitted to the reinvestment in its Central Business District.
Funding for the $18.9 million project included more than $7.3 million in federal and state historic tax credits, $2.7 million in new mar- kets tax credits, an $8.2 million Vision Iowa grant, grants from Iowa Great Places and the National Trust for Historic Preservation's Save America's Treasures program.
6 IRC §47(c)(1)(A)(i) and see §47(c)(1)(C) for definition of "substantially rehabilitated." 7 IRC §47(c)(1)(A)(ii). 8 IRC §47(c)(1)(A)(iv). 9 IRC §50(b)(1)(A). Historic Rehabilitation Tax Credit Recapture Survey
THE ROLE OF THE ADMINISTERING AGENCIES The HRTC program is a partnership among the NPS, the SHPO and the IRS. Each has the following IRS important roles:10 • Publishes regulations governing which rehabilitation expenses qualify, the time periods SHPO for incurring expenses, the tax consequences • Serves as first point of contact for property of certification decisions by NPS, and all other owners procedural and legal matters concerning • Provides application forms, regulations and both the 20 percent HRTC and the 10 percent other program information rehabilitation tax credits • Maintains complete records of its state's • Answers public inquiries concerning legal buildings and districts listed in the National and financial aspects of the rehabilitation tax Register of Historic Places, as well as state and credit program, and publishes the audit guide, local districts that may qualify as registered Market Segment Specialization Program: historic districts Rehabilitation Tax Credit, to assist owners • Assists anyone wishing to list a building or • Ensures that only parties eligible for the a district in the National Register of Historic rehabilitation tax credit utilize them. Places • Provides technical assistance and literature on appropriate rehabilitation treatments • Advises owners on their applications and makes occasional site visits to assist owners • Recommends certification to the NPS
NPS • Reviews all applications for conformance to the Secretary of the Interior's Standards for Rehabilitation • Issues all certification decisions (approvals or Capitol Theatre denials) in writing 1390 W. 65th Street, Cleveland, OH • Transmits copies of all decisions to the IRS Property and Project Details • Develops and publishes program regulations, The 1,200-seat Capitol Theatre in Cleveland, Ohio showed the Secretary of the Interior's Standards for silent films accompanied by a Wurlitzer organ until it was fitted Rehabilitation, the Historic Preservation for sound in the 1930s. In October 2009 nearly 90 years after it opened in 1921 and undergoing a $7.5 million renovation, Certification Application, and information on the theater once again welcomed moviegoers thanks in part to rehabilitation treatments $4.3 million in historic and new markets tax credit equity. V-
10 Preservation Tax Incentives for Historic Buildings, Heritage Preservation Services and National Park Service, Michael J. Auer, 2004, Page 14.
8 Historic Rehabilitation Tax Credit Recapture Survey
BASIS REDUCTION REQUIREMENT11 HRTC RECAPTURE The statute requires that the basis of the building IRC §50 (a) provides for recapture of the HRTC and the basis of the owner's interest in the property if within five years from the date on which any or entity owning the building be reduced when it qualified rehabilitation expenditures are placed is placed in service and before any depreciation in service: (a) ownership of the property changes deductions by the full amount of the HRTC claimed.12 or (b) the property ceases to be investment credit This rule follows the general reasoning that a property. Recapture of the HRTC is an additional taxpayer cannot claim both a credit and a deduction tax imposed in the year of the recapture event. If for the same expenditure when the credit is based on a recapture event occurs before an anniversary of an item that has been deducted. Although qualified the respective QRE placed-in-service date, then it rehabilitation expenditures (QRE) are capitalized is reduced by 20 percent for each subsequent year. and not deducted when incurred, these costs are For each subsequent year until the fifth year, the deducted through cost recovery, or depreciation for HRTC recapture amount is reduced by 20 percent buildings. Since the depreciable basis is reduced by per year. There is no recapture after the fifth year. the amount of the HRTC, depreciation deductions The recapture rates shown in the chart below apply over the tax life of the building are less than they for the five-year compliance period. would be otherwise. Also, this reduction in basis has the effect of increasing the potential taxable gain upon sale of the building.
HRTC RECAPTURE PERCENTAGE
100 -,
CD 80 - fflCT C CD O 60 - CD Q_ CD
COΠ40 - O CCCD 20 -
0 Year 1 Year 2 Year 3 Year 4 Year 5
The discussion on basis reduction only applies to directinvestments(seethesectiononTypicalTransaction Structures). For master lease transactions, the HRTC is amortized into the taxable income of the master tenant in lieu of the basis of the property being reduced by the HRTC. 12 IRC §50(c).
9 Historic Rehabilitation Tax Credit Recapture Survey
For partnerships owning an HRTC property, The credit does, however, pass through these types recapture is required if the partnership sells or of entities to be then used by partners, members transfers the building to another taxpayer or if or shareholders. In fact, the majority of HRTC a partner disposes of more than one-third of its properties are owned by pass-through entities interest in the partnership. because of other business considerations. Exempt organizations are not generally subject to federal Recapture is also required if the building ceases to income tax; therefore, they generally do not claim qualify as investment credit property. Investment or use the HRTC. credit property is defined as a property that is depreciable or amortizable and otherwise The table below shows information collected by the qualifies as a rehabilitation, energy or reforestation NPS from user profiles and customer satisfaction credit property. Therefore, if within the five-year questionnaires sent to the property owners. The recapture period the HRTC property subsequently NPS data shown in the table below indicates that becomes non-depreciable — i.e., it is converted to the flow-through form of ownership is the most personal use; is taken out of service; or becomes a common and is used in approximately 70 percent non-qualified rehabilitated building — for example, of all projects.13 This is the preferred investment it is destroyed by a natural disaster — recapture is structure of institutional investors. The largest generally required. groups investing in tax incentive projects in fiscal year 2010 were limited liability companies, THOSE WHO CAN USE THE HRTC comprising 58 percent of all projects. The HRTC is a dollar-for-dollar credit against regular U.S. federal income tax and alternative The chart below shows the different types of minimum tax. In general, it is available to any ownerships: taxpayer that is liable for income taxes, including individuals, regular corporations (including INDIVIDUAL 26% personal service corporations), estates and trusts, although the ability of individuals and closely-held CORPORATION 3% corporations to utilize the HRTC is limited by the GENERAL 1% passive activity rules contained in IRC §469. PARTNERSHIP
LIMITED 12% The HRTC is not directly available to pass- PARTNERSHIP through entities, such as partnerships, limited LIMITED LIABILITY 58% COMPANY liability companies treated as partnerships for tax purposes, or S corporations, since these entities TOTAL 100% generally are not subject to entity-level income tax.
13 National Park Service, Federal Tax Incentives for Rehabilitation Historic Buildings - Statistical Report and Analysis for Fiscal Year 2010, Page 15, Table 13.
10 Historic Rehabilitation Tax Credit Recapture Survey
TYPICAL TRANSACTION placed in service, a historic tax credit investor is STRUCTURES admitted into the entity for the majority ownership, There are two principal structures that are used for usually 99.99 percent, and the general partner/ financing HRTC transactions - the direct structure managing member retains a .01 percent interest. and the master lease structure. The direct structure, Generally, allocations of income, loss, HRTCs and which is often referred to as the single-tier structure, cash flow are made to the partners/members in is similar to that which is used in low-income proportion to their partnership interests, subject to housing tax credit investments. A single pass- certain limitations. through entity (e.g. limited partnership or limited liability company) owns the historic property and Below is a sample direct structure flow chart for an incurs all of the QREs. Prior to the property being HRTC transaction.
GENERAL BUILDING LIMITED PARTNER OWNERSHIP ENTITY PARTNER MANAGING MEMBER INVESTOR MEMBER • 0.01% P&L Allocation • LP or LLC 99.99% P&L Allocation • Operator of Property • Single Asset Entity 3% Priority Return • Performs Rehab Work
TENANT LEASES
11 Historic Rehabilitation Tax Credit Recapture Survey
The master lease structure generally uses two legal credits. IRC §50(d) and Treasury Regulation §1.48-4 entities. The lessor (landlord) entity is the owner permit the landlord and master tenant to mutually of the historic property and incurs the qualified agree by way of an election to treat the master rehabilitation expenditures. The other entity is tenant as having incurred the QREs acquired by the lessee (master tenant) entity. This entity will the landlord. Therefore, the master tenant entity master lease the property from the landlord, and reports the QREs on its federal income tax return will in turn sub-lease the space to residential and/ and allocates the HRTC to the investor. or commercial tenants. In general, the developer owns the landlord entity, usually holding an 85 Below is a sample master tenant structure flow to 90 percent ownership interest, and the master chart for an HRTC transaction. tenant entity often holds the remaining 10 to 15 percent ownership interest. The master tenant entity typically will admit a tax credit investor for a 99.99 percent ownership interest prior to the property being placed in service and a general FEDERAL partner/managing member will retain a .01 percent HRTC INVESTOR ownership interest. Under this structure, the landlord will make an election to pass through to FEDERAL the master tenant all or a portion of the historic tax HRTC HRTC EQUITY^ PASS-THROUGH OF FEDERAL LESSOR LLC HRTCS MASTER TENANT 90.00% Member - 99.99% Member - Managing Member MASTER LEASE Federal HRTC Investor 10.00% Member - 00.01% Member - Master Tenant Managing Member FEDERAL HRTC EQUITY
RENT PAYMENTS
MANAGING COMMERCIAL &M . IS MEMBER RESIDENTIAL * TENANTS
12 Historic Rehabilitation Tax Credit Recapture Survey
ECONOMIC IMPACT OF HRTC The HRTC takes dilapidated and forgotten buildings and turns them into retail, office, cultural and educational centers. It increases property values in surrounding communities and helps create additional alternatives for affordable housing. The federal HRTC has proven to be a positive investment for the nation, states and local communities. The chart below shows the national total economic impacts from the HRTC-associated rehabilitation investments for the program to date (FY 1978-2010) and for the two years from 2009 to 2010.14
1978-2010 2009-2010 $90.4 billion cumulative $8.8 billion historic historic rehabilitation rehabilitation expenditures results in expenditures results in Jobs (thousands) 2,020.8 145.1 Income 76.3 6.2 Output 210.2 16.6 GDP 103.8 8.4 Taxes 30.5 2.2 Federal 22.3 1.5 State 4.2 0.4 Local 4.1 0.4
During the past 34 years, $90.4 billion of QREs resulted in approximately $76 billion of income, $210 billion of output, $104 billion of GDP and $30 billion of taxes.15 The benefits that accrue from the investment in the federal tax credit-aided historic rehabilitation projects are extensive and almost all sectors of the nation's economy see their payrolls and production increase.16
14 Second Annual Report on the Economic Impact of the Federal Historic Tax Credit, The Historic Tax Credit Coalition, Rutgers -Edward J. Bloustein School of Planning and Public Policy, May 2011, Page 5. 15 Ibid. 16 Ibid.
13 Historic Rehabilitation Tax Credit Recapture Survey
TRANSACTIO N CHARACTERISTICS There are various types of historic projects that qualify for HRTCs. Projects can be classified as the following:
• Housing use • Mixed use • Retail use • Office use • Hotel use • Other use
The chart below shows the project types of the total certified projects during the past 10 years.
PROJECTS TYPES OF TOTAL CERTIFIED PROJECTS IN THE PAST 10 YEARS
• Housing
• Mixed use
I Retail
I Office
I Other
Hotel
The chart above was derived using data based on Part 3 (final) approvals provided by NPS. More than 50 percent of the total QREs claimed in the past 10 years have been used for housing. Mixed use and retail use were the second and third most common project types with more than 16 percent and 14 percent, respectively, of the total QREs claimed. Hotels were the least common project type with 3 percent of the total QREs claimed. The remaining 6 percent was used for other projects such as theatres.
14 Historic Rehabilitation Tax Credit Recapture Survey
SURVEY RESPONSES
Novogradac & Company LLP conducted a survey of large institutional investors including national banks and Fortune 500 companies17 that make direct and indirect investments in HRTC transactions.18 Survey respondents collectively have earned more than 50 percent of the HRTCs claimed during the past 10 years.
Information on the following was gathered from the respondents:
• Number of years the organization has been investing in HRTCs • Total amount invested in HRTCs • Number of HRTC transactions the organization has completed • Other types of tax credit programs in which the organization participates • Number of transactions that have experienced recapture • The year of the compliance period in which recapture occurred
NUMBER OF YEAR S THE ORGANIZATION HAS BEEN INVESTING IN HRTCS Survey respondents ranged from investors that have been investing in the HRTCs since the late 1980s to investors that started investing in the past 10 years. More than 80 percent of the respondents have been investing in HRTCs for more than 10 years. The graph below shows the number of years the respondents have been investing in the HRTC program: NUMBER OF YEARS THE ORGANIZATION HAS BEEN INVESTING IN HRTC 100
£Z CD 80- TD£Z O Œ W 60 CCCD
CD £CT 40- c CD O 20 CD Q_
0 1 1 0-10 10-20 20-30 Number of Years the Organization has been Investing in HRTC
17 The investors were assured anonymity and confidentiality with the information they provided. 18 This study only surveyed investors regarding their recapture experience with the 20 percent historic rehabilitation tax credit.
15 Historic Rehabilitation Tax Credit Recapture Survey
TOTAL AMOUNT INVESTED IN HRTC of HRTCs. For the purposes of this study, it was Survey respondents were asked to provide the estimated that the average price the investor paid amount they have invested in HRTCs in the past 10 was $1.05 per $1 of HRTCs. years. Over the course of those 10 years, there were several years in which the prices of HRTCs exceeded The graph below compares the total QREs and $1. It is common industry practice to express the HRTCs claimed on Part 3 (final) approvals and investors' investment as price per $1 of HRTCs. the amount of QREs and HRTCs claimed by the P However, the H e RTC investor receives benefits inrespondents during the past 10 years. During those addition to the HRTC, benefits such as cash flow, 10 years, $28 billion of QREs have been claimed a t depreciation, et c c. that contribute to the price the on Part 3 (final) approvals and of that n amount, HRTC investoreRpays for its investment. Although respondents claimed nearly $14.3 billion of the the prices per dollar of HRTCs varied depending available QREs. Of the approximate $5.68 billion in on how the transactions were structured, it was HRTCs claimed on Part 3 (final) approvals, survey not uncommon for investors to be paying prices respondents claimed nearly $2.9 billion of thei between 95 cents and $1.10 or more for each $1 ava i lable HRTC s.
QRES AND HRTCS OVER THE PAST 10 YEARS $30,000-,
$25,000- Total in the Past 10 Years
Claimed by Respondents $20,000
£Zo>
= $15,000
$10,000-
$5,000-
$0 QREs HRTCs
* The total of QREs above was derived using data from NPS' Statistical Reports and Analysis for Fiscal Year 2010.19 ** The total of available credits above was derived using data for the amount of QREs reported on the Part 3 approvals from NPS' Statistical Reports and Analysis for Fiscal Year 201020 multiplied by the 20 percent credit.
19 National Park Service, Federal Tax Incentives for Rehabilitation Historic Buildings - Statistical Report and Analysis for Fiscal Year 2010, Page 10, Table 8. 20 Ibid.
16 Historic Rehabilitation Tax Credit Recapture Survey
NUMBER OF HRTC TRANSACTIONS THE ORGANIZATION HAS COMPLETED In total, respondents have invested ip 653 have inLested in 150 to 200 transactions and 17 transactions over the course of the past 10 years. percent of the respondents have invested in more Fifty percent of the respondents have invested in than 200 transactions. five to 50 transactions, 33 percent of the respondents
TYPES OF OTHER TAX CREDIT PROGRAMS Survey respondents were asked if they participated The renewable energy tax credit program had in other tax credit programs. The survey showed the lowest participation rate — only a third of the that all of the investors participate in other tax respondents had also participated in the renewable credit programs such as the low-income housing energy tax credit program. The graph below tax credit, the new markets tax credit and the shows the number of respondents that also invest renewable energy tax credit programs. All of the in other tax credit programs. These responses respondents participate in the low-income housing demonstrate that HRTC investors are sophisticated tax credit program and more than 80 percent and experienced tax credit investors. participate in the new markets tax credit program.
PERCENTAGE OF RESPONDENTS PARTICIPATING IN OTHER TAX CREDIT PROGRAMS
LIHTC NMTC Renewable Energy
17 Historic Rehabilitation Tax Credit Recapture Survey
RESPONDENT RECAPTURE EXPERIENCE Survey results show that of the approximate $3 billion in total HRTCs claimed by the respondents, approximately $22 million was recaptured during the past 10 years. This represents a recapture rate of less than three-quarters of one percent on a dollar volume basis.
The graph below compares the total amount of HRTCs claimed by the respondents and the amount of HRTCs recaptured: HRTC RECAPTURE RATE AS A PERCENTAGE OF ALL CREDITS CLAIMED $3,500
$3,000 I Total HRTCs Claimed by TD CD Respondents E $2,500 - ça HRTCs Recaptured 0
Total HRTCs Claimed by HRTCsReca ptured Respondents Survey results show that the respondents have experienced seven events of recapture out of a total of 653 transactions. This represents a recapture rate of approximately 1 percent of the transactions completed by the respondents. The graph below compares the total numberofHRTC transactions in which the respondents have invested and the numberofthosetransactionsthatexperienced recapture. HRTC RECAPTURE RATE AS A PERCENTAGE OFALL 700 TD RESPONDENT TRANSACTIONS CD CÌ 600 oCO I Total Transactions CD CU 500 Recaptured Transactions £ZCO o 400 o CO £Z 300 CO
HRTC RECAPTURE 200 JDCD RATE FOR THE E PAST 10 YEARS 100 IS1.07%
0 Total Transactions Recaptured Transactions Historic Rehabilitation Tax Credit Recapture Survey
As shown in the chart below, of the seven recapture events reported by the survey's respondents, four of the seven resulted in a recapture amount of $1 million or less.
NUMBER OF TRANSACTION 5 EXPERIENCING RECAPTURE BY RESPONDENTS
• $1 Million or Less
$1 Million or Less $1 - $6 Million More than $6 Million Amount of Recapture
YEAR OF COM PLIANCE PERIOD IN WHICH RECAPTURE OCCURRED Survey respondents reported more than half of the events of recapture occurred in year three or later of the compliance period. Of the total seven transactions suffering recapture, 43 percent were recaptured during the second year of compliance period, 43 percent were recaptured during the third year and 14 percent experienced recapture during the fourth year. No transactions were recaptured during the first or the last year of compliance period. The chart below shows the year in which the recapture took place for the seven transactions experiencing recapture.
YEAR OF COMPLIANCE PERIOD IN WHICH RECAPTURE OCCURRED 4 -i
œ £Z o 3 - o CO £Zw CO 2
CD
e Year 1 Year 2 Year 3 Year 4 Year 5
19 Historic Rehabilitation Tax Credit Recapture Survey
COMPARISON OF SURVEY RESULTS The survey results are in line with data obtained recapture occurs in year three of the compliance from the IRS for this report from 2008 Form period, we can look to the amount of tax credits 1120s.21 An analysis of data from the 2008 Form claimed three years prior to the recapture event. 3468 - Investment Credit shows that of the total Thus, the amount of tax credits recaptured when $1,485,957,000 investment credits claimed by all compared to the $498,200,00023 of tax credits filers of Form 1120, $679,681,000 of this amount claimed in 2005 results in an annual recapture rate was for the HRTC. The HRTCs therefore represent of 0.07 percent. This analysis supports the report's more than 45.74 percent of the total investment survey results that HRTCs are financially sound credits claimed that year. Additionally, of the and safe investments. corporations that filed a Form 1120 in 2008, there were five incidents of recapture reported on Form The survey results are also favorable when 4255, Recapture of Investment Credit, and the total compared to loan loss rates on commercial real recapture amount for all investment tax credits was estate loans. The average annual loan loss rate $773,000. If it is assumed that tax credit recapture that commercial banks have experienced on their occurs proportionally among all of the investment commercial real estate loans during the past 10 tax credits, it can be presumed that $353,57022 in years has been 0.66 percent net of recoveries.24 HRTCs were recaptured. When adjusted to eliminate recoveries,25 the annual loss rate is 1.02 percent as compared to the more Using the survey results, and assuming a favorable annual HRTC recapture rate of 0.07 conservative position that the average HRTC percent as derived from the 2008 corporate data set.
Smith's Block 111 S.W. Naito Parkway, Portland, OR
Property and Project Details The Smith's Block building, completed in 1872, is one of the oldest buildings in Portland's waterfront area and a stunning example of cast-iron architecture. RV Kuhns & Associates purchased the property in 2005 in order to rehabilitate the space and relocate its Portland office there.
The building was part of the waterfront strategic plan put forth by the city's redevelopment agency that called for the addition of more day-time office employees and retail establishments to the area.
The building's historic facade has been retained while the interior has received a significant seismic upgrade in addition to a range of interior improvements that enable it to provide very high quality office space for the Kuhns staff. Funding for the $9.7 million renova- tion included $1,269,876 in federal historic tax credits and $7.55 million in new markets tax credits.
21 Department of Treasury, Internal Revenue Service: 2008 Estimated Data Line Counts Corporation Tax Returns. The IRS has only made available the 2008 estimated corporate data. 22 45.74 percent ratio of HRTC as compared to total investment tax credits claimed. 23 National Park Service, Federal Tax Incentives for Rehabilitation Historic Buildings - Statistical Report and Analysis for Fiscal Year 2010, Page 10, Table 8. 24 Federal Financial Institutions Examinations Council (FFIEC) Consolidated Report of Condition and Income (1985-2000: FFIEC 031-034; 2001-: FFIEC 031 & 041) 25 Mean recovery rates on defaulted commercial real estate loans estimated based on data from US Capital Trends: Special Report. Recovery Rates, pub- lished by Real Capital Analytics Inc. January 2012.
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REASONS FOR SUCCESSFUL TRACK RECORD OF THE HRTC There are several factors that contribute to the of properties by syndicators and investors successful track record of the HRTC program: Economies of scale and uniform practices Construction and lease-up risk borne by • Large dollar investments from third-party investors and developers investors (non-federal sources) Regulatory guidance and enforcement by the IRS • Thorough underwriting and asset management
LARGE-DOLLAR INVESTMENTS FROM THIRD-PARTY INVESTORS (NON-FEDERAL SOURCES) More than $28 billion in QREs was claimed for payment when they exit the transaction. As a result Part 3 approvals between 2001 and 2010. Investors they monitor their HRTC investments constantly. often invest a significant amount of capital per Moreover, many HRTC investors require additional HRTC property, frequently more than $1 million testing and auditing beyond what is required by the per investment. Because of the complexity and HRTC statue and regulations. Adding a third party expense of HRTC transactions, investors are to the transaction helps add experience, different generally sophisticated institutional investors. In perspectives and different motives to help assure addition, investors often receive not only HRTCs an HRTC property's success. but a share of the project's annual cash flow and a
SCREENING OF PROPERTIES BEFORE DEVELOPMENT BY THIRD-PARTY INVESTORS The financial health of an HRTC property is very HRTC investors spend considerable time reviewing important to the investor. If an HRTC property and assessing the financing, market forecasts and is lost to foreclosure, the investor could face the forecasted operating cash flows of the properties in recapture of its HRTCs and the loss of other benefits. which they are investing. This investor review often Thus, investors will generally step in to save a results in a more durable financial structure, such troubled property before it is lost to foreclosure. as funding of additional cash reserves. Bringing This also causes investors to spend significant time in an experienced investor for added screening underwriting and screening properties for quality not only strengthens the HRTC transaction, the and sustainability before investing in an HRTC additional screening is important in maintaining a transaction. low recapture rate for the HRTC program.
21 Historic Rehabilitation Tax Credit Recapture Survey
ECONOMIES OF SCALE AND UNIFORM PRACTICES There are countless third-party investors that have investment and compliance departments, as well invested in HRTC properties since the inception as those that simply invest alongside other more of the HRTC program. Some of these investors knowledgeable investors through syndicators, make direct investments in HRTC properties while to generate economies of scale and investment others rely on third-party syndicators to pool diversification. Because of the sizable capital properties into investment funds. These third- invested by tax credit investors in HRTC funds, party syndicators market HRTC properties to many uniform practices have developed regarding tax credit investors and ultimately place them in how to underwrite HRTC investments, value the investment funds. The number of HRTC properties associated financial benefits, and manage the in an investment fund can range from as few as ongoing compliance. one to as many as several hundred properties, thus accommodating varying investment appetites Through the proliferation of common underwriting of tax credit investors. By investing in HRTCs via and reporting guidelines, HRTC properties are an investment fund, a tax credit investor has the held to much more consistent standards after flexibility to diversify or concentrate the investment rehabilitation than they might be otherwise. For in varying property types. those properties that are funded, this results in a higher long-term success rate and more predictable The use of investment funds as ownership vehicles investment yields for HRTC investors. has allowed investors with dedicated HRTC
CONSTRUCTION RISK BORNE BY INVESTORS AND DEVELOPERS During the life of a property, the riskiest period generally is liable for completion of the property from a financial standpoint is the construction or and any associated cost overruns. This typically rehabilitation phase. One important dynamic of heightens the developer's motivation to oversee the the HRTC program is that the federal government contractor during the construction process. With is not subject to construction risk because HRTCs some exceptions, an HRTC property's funding are not earned until the rehabilitation is completed sources are usually fixed. A permanent lender and the building is placed in service. Major will only lend up to an appropriate amount of construction/rehabilitation risk is borne by the debt that is supported by the property's forecasted developer, and to a somewhat lesser extent, the net operating income based on a requisite debt HRTC investor, the lender and/or the bridge loan service coverage ratio. Tax credit equity investors provider when applicable. On a typical HRTC stage their capital contributions based on various property, a developer is generally required by its benchmarks and are protected from having to tax credit equity investor to guarantee completion increase their total capital contributions by HRTC of rehabilitation of the property. The developer adjuster provisions in the partnership agreement.
22 Historic Rehabilitation Tax Credit Recapture Survey
REGULATORY GUIDANCE AND ENF< RCEMENT BY VARIOUS GOVERNMENTAL AGENCIES To be able to claim the HRTCs, property owners various governmental agencies, along with other must perform the rehabilitation in accordance filings that are required by the IRS, keep them well with the Secretary of the Department of Interior's informed of problems with specific properties. This Standards. After the rehabilitation is completed, it oversight is valuable in keeping property owners is certified by the SHPO and NPS. On approval/ compliant with the rules and assists in reducing certification, the property owners are eligible to the recapture risk for the investors. claim a tax credit. These filing requirements with
Daylight Building 501 West Union Avenue, Knoxville, TN
Property and Project Details Knoxville developer Benjamin Howard Sprankle completed construction on the Daylight Block, now known as the Daylight Building, in 1927. The two-story brick building got its name from its large windows, transoms, skylights and clerestory win- dows that flooded the space with natural light. The original building included retail space and offices.
Knoxville has served as TVA's headquarters since it was created in 1933 as part of President Roos- evelt's New Deal program. TVA provides seasonal flood management, agricultural outreach and the building of dams, locks, bridges and power plants to the Tennessee Valley. The agency occupied most of the building by 1934 and continued to occupy space in the building until the 1980s. After more than eight decades, many of the Daylight Block's original features had been altered or lay hidden, buried beneath layers of paint. It was through developer Dewhirst Properties LLC's persistence and view that the building held great potential that it continued to seek National Register status. Ultimately, it was the presence of offices for the Tennessee Valley Authority, the nation's first and largest regional planning agency, that helped the building secure a place on the National Register.
Construction on the $6 million renovation began on August 2009 and was completed on 36 apartments and five retail spaces in August 2010 using $1.5 million in historic tax credits, $1 million in tax increment financing from the city and a construction loan.
23 Historic Rehabilitation Tax Credit Recapture Survey
CONCLUSION
Survey respondents have collectively claimed more than 50 percent of all the HRTCs claimed during the past 10 years. The survey responses demonstrate that HRTC transactions have experienced very low rates of recapture. The responses show that respondents have experienced a recapture rate of less than three- quarters of one percent over the past 10 years. Additionally, the survey results are further supported by an analysis of the information obtained from the IRS, which reflects an annual HRTC recapture rate of 0.07 percent for 2008. As discussed, this successful track record can be attributed to several factors: large dollar investments from third parties; screening of properties before development by third-party investors; economies of scale and uniform practices; construction risk and lease-up risk borne by investors and developers; and regulatory guidance and enforcement by the IRS. The results of this survey demonstrate that HRTCs are a safe and sound investment for banks and corporations in general - an investment with low risk of tax credit recapture. ( \
The Mill at Saco Falls 100 Saco Falls Way, Biddeford, ME
Property and Project Details Before being shuttered late last century, The Mill at Saco Falls had provided jobs to residents of Southern Maine for more than 150 years. In November, the 165-year-old textile mill reopened its doors to provide housing to 66 families. The Szanton Company used state and federal historic tax credits (HTCs) along with low-income hous- ing tax credits (LIHTCs), Tax Credit Assistance Program (TCAP) funds and a tax credit exchange program grant to convert the mill into affordable and market rate units. The $14.6 million redevelopment is the first of nine buildings to be renovated in an effort to transform the abandoned mill complex into a vibrant mixed- income community within the city of Biddeford, Maine.
Adjacent to the Saco River and about 20 miles southwest of Portland, the apartment building is part of the larger Biddeford Mill Dis- trict. The property's 66 housing units include 40 affordable and 26 market rate units. The income-restricted units will be available to families earning up to 50 percent of the area median income, with preference given to survivors of domestic violence for 20 percent of the affordable units.
Funding for the project included $2.1 million in federal HTCs, $3 million in Maine HTCs, a $3.4 million TCAP grant from the Maine State Housing Authority, a $2.9 million tax credit exchange program grant, $670,000 in taxable bonds and an LIHTC allocation. The property also received $980,000 from the city of Biddeford through a U.S. Department of Housing and Urban Development HOPE VI Main Street grant.
24 Historic Rehabilitation Tax Credit Recapture Survey
25 Historic Rehabilitation Tax Credit Recapture Survey
The National Trust for Historic Preservation provides leadership, education, advocacy, and resources to save America's diverse NATIONAL historic places and revitalize our communities. TRUST
The National Trust for Historic Preservation is a private, nonprofit FOR membership organization dedicated to saving historic places and HISTORIC revitalizing America's communities. Recipient of the National Humanities Medal, the Trust was founded in 1949 and provides PRESERVATION* leadership, education, advocacy and resources to protect the irreplaceable places that tell America's story. Staff at the Washington, DC, headquarters, six regional offices and 29 historic sites work with the Trust's 200,000 members and thousands of preservation groups in all 50 states.
Novogradac & Company LLP is a national certified public • NOVOGRADAC accounting and consulting firm with 13 offices nationwide. Our & COMPANY LL, clients represent a broad range of industries, with a major emphasis in the real estate sector. We provide publicly and privately held ^^^ CERTIFIED PUBLIC ACCOUNTANTS national enterprises, including not-for-profits, government agencies, development and construction companies, real estate investment companies and securities firms with a full spectrum of audit, tax, valuation, expert witness and litigation support, property compliance and general consulting services. We work extensively in the historic preservation, affordable housing, community development and renewable energy fields. The firm has consulted for 23 years on thousands of real estate projects and maintains client relationships with the leading sponsors in the industry.
The partners of Novogradac & Company LLP have published numerous articles on a wide variety of business subjects. They also are the authors of the Historic Rehabilitation Handbook, the Low-Income Housing Tax Credit Handbook, the New Markets Tax Credit Handbook and the Renewable Energy Handbook. Additionally, the firm publishes the monthly Novogradac Journal of Tax Credits.
The firm sponsors numerous conferences aimed at the most prominent players in the community development and affordable housing industries to conduct training workshops, deliver educational sessions and forecast legislative and industry change. Novogradac & Company LLP is ranked by Accounting Today and Inside Public Accounting as one of the top 50 accounting firms in the nation.
26 Historic Rehabilitation Tax Credit Recapture Survey
LIMITING CONDITIONS
This analysis surveyed a sample of market The publication of this report does not constitute participants to determine their experiences a professional services engagement, including with historic rehabilitation tax credit recapture. without limitation any form of attestation Novogradac & Company LLP makes no engagement, such as an audit, compilation or representation regarding the sufficiency of the review. Novogradac & Company LLP, therefore, procedures, either for the purpose of its analysis did not issue any independent accountants' or for any other purpose. The survey included a reports, findings or other work product including sample of market participants and was by no means a compilation, review or audit report in connection exhaustive. As a result, other market participants with this engagement. Any federal tax advice that involved in similar transactions may use other may be contained in this Special Report is not methodologies and involve other considerations intended to constitute a covered opinion pursuant that may also produce meaningful results. The to regulation section 10.35 of Internal Revenue information received from the market participants Service (IRS) Circular 230 nor is it to be used for has not been tested or verified. Therefore, the purpose of (i) avoiding tax-related penalties Novogradac & Company LLP does not warrant under the Internal Revenue Code or (ii) promoting, the accuracy of the data received from the market marketing or recommending to another party any participants. tax-related matters addressed therein.
27 NATIONAL TRUST FOR HISTORIC PRESERVATION" 1785 MASSACHUSETTS AVE. NW, WASHINGTON, DC 20036-2117 TEL: 202.588.6000 800.944.6847 FAX: 202.588.6038
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PHYSICAL & DELIVERY ADDRESS: 246 FIRST STREET, 5TH FLOOR SAN FRANCISCO, CA 94105 TEL: 415.356.8000 FAX: 415.356.8001 Second Annual Report on the Economic Impact of the Federal Historic Tax Credit
THE HISTORIC TAX CREDIT COALITION
MAY 2011
National Trust COMMUNITY RUTGERS Edward J. Bloustein School INVESTMENT of Planning and Public Policy Corporation a subsidiary of NATIONALTRUST FOR HISTORIC PRESERVATION' RESEARCH AUTHORED BY Center for Urban Policy Research Edward J. Bloustein School of Planning and Public Policy Rutgers, The State University of New Jersey New Brunswick, New Jersey 08901 David Listokin, Co-Principal Investigator Michael L. Lahr, Co-Principal Investigator Charles Heydt, Research Associate David Stanek, Research Associate
IN COOPERATION WITH National Trust Community Investment Corporation Washington, DC 20036 John Leith-Tetrault, President Anna Klosterman, Marketing and Communications Manager
RESEARCH CONDUCTED FOR Historic Tax Credit Coalition Liberty Place, 325 7th Street NW, Suite 4 0 0 Washington, DC 20004
The Historic Tax Credit Coalition, The National Trust Community Investment Corporation, and Rutgers University wish to acknowledge the research assistance of the Technical Preservation Services group of the National Park Service and the National Conference of State Historic Preservation Officers, without which this report would not have been possible. Second Annual Report on the Economic Impact of the Federal Historic Tax Credit
THE HISTORIC TAX CREDIT COALITION
EXECUTIVE SYNTHESIS
This study examines the historical and current application of the federal historic tax credit (HTC) in the United States; presents quantitative and qualitative information regarding the economic and other benefits of the federal HTC (e.g. providing afford- able housing and spurring downtown revitalization); and explores ways in which the current federal HTC—a strong program in its own right—can be more flexibly applied in the future so as to realize yet greater production and ensuing benefits.
The research for this report was conducted by the Rutgers Center for Urban Policy Research under the guidance of Dr. David Listokin, Michael L. Lahr, David Stanek, Charles Heydt, and with the assistance of John Leith-Tetrault and Anna Klosterman of the National Trust Community Investment Corporation (NTCIC), the historic tax credit subsidiary of the National Trust for Historic Preservation. This study was commissioned by the Historic Tax Credit Coalition (HTCC), a public policy advocacy organization whose members represent historic tax credit industry participants including investors, syndicators, developers, preservation consultants, tax attorneys and accountants.
INTRODUCTION TO FEDERAL AND STATE HISTORIC TAX CREDITS AND ALLIED SUBSIDIES TO FOSTER HISTORIC REHABILITATION
History of Federal and State Tax Credit Incentives
The history of federal tax incentives for historic rehabilitation began with the 1976 Tax Act which included a 60-month ac- celerated depreciation of certain costs of rehabilitating certified historic properties
Cleveland Institute of Art (CIA) McCullough Center, Cleveland, Ohio: The CIA used $5,251,280 in federal Historic Tax Credit equity, along with financing generated by the Ohio State Historic and New Markets Tax Credits to rehabilitate this former Ford Model-T assembly plant into classrooms, artist studios, faculty and administrative space. SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
and a tax deduction for preservation easements. However the most significant step for- ward came with the Economic Recovery Tax Act (ERTA) of 1981 which included a 25% tax credit for income producing certified historic rehab, a 15% credit for the rehabilita- tion of non-historic buildings at least 30 years old, and a 20% credit for renovation of existing commercial properties at least 40 years old. ERTA quickly became a powerful driver of historic and non-historic rehabilitation activity as part of a broader economic stimulus package of the new Reagan Administration. Total certified National Park Ser- vice (NPS) Part 2 approvals1 reached a peak of 6,214 projects approved in 1984. Federal HTC activity from the 1970s to date is shown in Summary Exhibits 6 through 9.
The last major structural changes to the IRC Section 47 rehab credits were made 24 years ago in 1986 as part of the 1986 Tax Reform Act (TRA) when the 25% certified historic rehab credit was reduced to 20% and the non-historic building rehab credit was collapsed into one 10% credit. Just as significant was the Act's new "passive loss" rules which placed limitations on individual investor use of the HTC to offset invest- ment income. The HTC market, which had depended on a combination of individual developer/owner investments and large individual-investor syndication structures, plummeted as a result of this change. The decline continued through 1993 when only 538 projects received NPS Part 2 approval (Summary Exhibit 6). In the wake of the 1986 passive loss rule changes, thousands of individual HTC investors were left with credits that they could not redeem.
The HTC market began to recover during the second half of the 1990s when cor- porations that had become regular investors in the Low-Income Housing Tax Credit (LIHTC) began looking for alternative investments when yields on the LIHTC began to fall. These companies had become familiar with the HTC through the twinning of the HTC with LIHTC credits when historic properties were adaptively reused for afford- able housing.
From 2000 to 2010, there was an uptick in the number of HTC projects as measured by Part 2 approvals compared to the previous decade (though the 2000 to 2010 project approval volume was far below that achieved in the 1990s). From 2000 to 2010, there was also a dramatic increase in the dollar HTC investment as measured by Part 2 investment compared to the 1990s, though this increase was less potent (especially relative to the 1980s) when adjusted for inflation (Summary Exhibit 7). Most recently, we observe the dampening impact of a challenging real estate climate on HTC activity as there has been a drop off in the number of Part 2 projects and Part 2-related dollars invested over the last two years.
We observe similar trends when examining the total rehabilitation project cost borne by HTC developers and not just the dollar amount certified for tax credit purposes.2 These figures are shown in Summary Exhibit 8. The peaks and valleys are readily
1 The HTC has a multi-step application process encompassing "Part 1" (evaluation of the historic significance of the property), "Part 2" (description of the rehabilitation work), and "Part 3" (request of certification of completed work). Both "Part 2" and "Part 3" rehabilitation statistics include only what are termed "eligible" or "qualified" items (or Qualified Rehabilitation Expenditures—QRE) for the tax credit as opposed to what are called "ineligible" or "non-qualified" costs. While the "ineligible"/ "non-qualified" expenses do not count for tax credit purposes, they are practically a component of the total rehabilitation investment or cost borne by the HTC-oriented developer and, in fact, the total rehabilitation investment (including "ineligible"/ "non-qualified" costs) help pump-prime the economy.
2 See footnote 1 for explanation.
2 EXECUTIVE SYNTHESIS | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
Atlas Life Building, Tulsa, Oklahoma: Rehabilitation of this former downtown insurance company office building into a Marriott Hotel used $2,825,000 in federal Historic Tax Credit equity. evident. The HTC total rehabilitation project cost rose dramatically after the 1981 ERTA (to a high of $4.7 billion in 1985), fell precipitously after the 1986 Tax Re- form Act (to a low of $1.1 billion in 1994), and regained vigor with some unevenness over the past decade ($3 to $5 billion annually), such as a recent drop in HTC rehabilitation project cost as the nation's real estate market faced difficult times. (All figures just cited are in inflation-adjusted 2010 dollars.)
In addition to leveraging other federal subsidies for housing and business development in low-income communities, the HTC has provided a model for the enactment of state historic tax credits (SHTC) in 33 states. This number of tandem SHTCs compares favorably to the 16 states with state LIHTCs and eight states with New Markets Tax Credit (NMTC) programs. NPS statistical reports document that the states with strongest SHTC statutes regularly lead the nation in the use of the federal HTC.
The Need for Historic Tax Credit Modernization
Despite the documented success of the HTC program, on a dollar volume basis, it remains much smaller than the LIHTC and NMTC credit programs. Even as an uncapped credit, the NPS certified only $688 million in HTCs in FY 2010.3 This compares to the pre-recession $9 billion credit expenditure level for the LIHTC and the recent $3.5 billion Round 8 allocation of the NMTC program.
There are a variety of reasons for the lower utilization rate of the federal HTC. Sug- gestions for removing some of these impediments were contained in the Community Restoration and Revitalization Act, a bill introduced in 2009 (111th Congress). The broad themes of HR 3715 and S 1743 included provisions that would increase the 20% credit to 30% on "Main Street-scale" rehabilitations ($5 million in qualified rehab expenditures and under). Another provision provided a deeper credit (22%) if the rehabilitation project achieved at least a 30% energy efficiency improvement over a regionally adjusted baseline for similar buildings.
The bill provided for the indexing of the eligibility dates for properties that utilize the 10% rehabilitation credit, so that buildings 50 years or older would qualify. HR 3715 and S 1743 promoted nonprofit organization sponsorship of HTC transactions by roll- ing back three of the four "disqualified lease rules" that limit leasing to nonprofit or
3 This is the amount of the HTC derived by applying the 20 percent credit to the Part 3 certified investment.
3 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
government tenants in HTC properties to 50% of leasable space. Finally the bill con- tained several provisions that would increase the value of state HTCs when used in tandem with the federal HTC. The Historic Tax Credit Coalition intends to reintroduce this legislation in the 112th Congress sometime in the spring of 2011.
ECONOMIC IMPACTS OF THE FEDERAL HISTORIC TAX CREDIT
Research Assumptions and Methodology
From fiscal year (FY) 1978 through FY 2010, NPS "Part 2" pre-rehabilitation approv- als indicate about $106.7 billion (in inflation-adjusted 2010 dollars) of rehabilitation was invested in about 47,000 federal HTC-associated projects. In FY 2009 and 2010 combined, the Part 2 volume in such projects was about $8.1 billion. However, the amount of Qualified Rehab Expenditures (QREs) for the tax credit reflected in "Part 3" certifications, made after completion, is significantly less: about $81.4 billion over FY 1978-2010 and $7.9 billion in FY 2009 and 2010 combined (all inflation-adjusted 2010 dollars). (All the above figures are best estimates.) This report therefore uses the lower Part 3 QREs inflated by 10% to account for non-QRE expenditures to es- timate the economic impacts of the federal HTC.4 Aggregate investment using this more conservative approach is $90.4 billion over the 33-year life of the federal HTC and $8.8 billion in FY 2009 and 2010 combined. More detailed program activity data are found in Summary Exhibit 1.
The federal cost of the HTC is equal to the credit percent (25 percent from 1978 through 1986 and 20 percent from 1987 onward) applied to the "Part 3" investment. That calculation yields the following estimates: the federal tax credit over the FY 1978-2010 period cost $17.5 billion to the US Treasury (in inflation-adjusted 2010 dol- lars) while the credit cost in FY 2000 and 2010 was about $1.6 billion. Estimated total federal tax receipts generated by the HTC during these two periods were $22.3 billion and $1.5 billion respectively, indicating that the federal historic tax credit is a revenue raiser for the US Treasury or is at least about revenue neutral. (See Summary Exhibit 1 for details.)
This study quantifies the construction-stage total economic effects (i.e., direct as well as multiplier or secondary economic consequences) of the above cited investments. These effects are studied via an input-output model developed by Rutgers University for the National Park Service called the Preservation Economic Impact Model (PEIM).
In the current analysis, the PEIM is applied to both cumulative (FY 1978 through 2010) federal tax credit-aided historic rehabilitation investment in the United States (about $90.4 billion in 2010 inflation-adjusted dollars) and to the two-year FY 2009 and 2010 combined tax credit-aided rehabilitation investment (about $8.8 billion) throughout the nation. In applying the cumulative FY 1978-2010 analysis, we consider the effects of the $90.4 billion rehabilitation investment as if effected in one year (2010),5 rather than retroactively backdating and applying the economic model for each of the 33 years encompassing the FY 1978-2010 study period.
4 See discussion at footnote 1.
5 The two-year 2009 and 2010 investment is similarly treated. EXECUTIVE SYNTHESIS | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
The results of the PEIM model include many fields of data. The fields most relevant to this study are the total impacts of the following:
JOBS: Employment, both part- and full-time, by place of work, estimated using the typical job characteristics of each industry. INCOME: "Earned" or labor income, specifically wages, salaries, and proprietors' income. WEALTH: Value-added—the sub-national equivalent of gross domestic product (GDP). At the state level, this is called gross state product (GSP). OUTPUT: The value of shipments, which is reported in the Economic Census. TAXES: Tax revenues generated by the activity which include taxes to the federal, state and local governments.
HTC National Economic Impacts
The national total (direct and multiplier) economic impacts from the HTC-associated rehabilitation investment for the program to date (FY 1978-2010) and for the most current two-year investment (FY 2009 and 2010) are shown below and are also con- tained in Summary Exhibit 1. Selected critical findings are further plotted in Summary Exhibits 2 through 5.
ECONOMIC IMPACTS Federal HTC-assisted Rehabilitation $90.4 billion cumulative $8.8 billion for FY 2009 (FY 1978-2010) historic and 2010 historic rehabilitation expenditures rehabilitation expenditures results in: results in:
National Total (Direct and Multiplier Impacts) Jobs (person-years; thousands) 2,020.8 145.1 Income ($ billion) 76.3 6.2 Output ($ billion) 210.2 16.6 GDP ($ billion) 103.8 8.4 Taxes ($ billion) 30.5 2.2 Federal ($ billion) 22.3 1.5 State ($ billion) 4.2 0.4 Local ($ billion) 4.1 0.4
The benefits that accrue from the investment in the federal tax credit-aided historic rehabilitation projects are extensive and almost all sectors of the nation's economy see their payrolls and production increased. Illustrative are the cumulative FY 1978-2010 federal HTC effects. Just under 30 percent of the national-based jobs from the cumu- lative $90.4 billion tax credit-aided rehabilitation investment (approximately 592,000 of 2,021,000 jobs) and national gross domestic product ($29.2 billion of $103.8 bil- lion GDP) accrue to the nation's construction industry; this is as one would expect,
5 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
given the share of such projects that require the employment of building contractors. Other major economic sector beneficiaries are services (360,000 jobs, $13.7 billion in GDP) as well as manufacturing (411,000 jobs, $26.6 billion GDP) and the retail trade (298,000 jobs, $7.8 billion GDP) sectors. As a result of the interconnectedness of the national economy and because both direct and multiplier effects are consid- ered, other sectors of the national economy not immediately associated with historic rehabilitation are affected as well, such as agriculture, mining and transportation and public utilities. (See Summary Exhibits 2 and 3.)
The recent (FY 2009 and 2010 combined) economic prowess of the federal HTC is also most impressive. For example, it generated about 145,000 jobs, including 52,000 jobs in construction and 33,000 jobs in manufacturing; it was responsible for $8.4 bil- lion in GDP, including $2.8 billion and $2.4 billion GDP increments in the construction and manufacturing sectors respectively; and the 2009 and 2010 HTC activity realized a $6.2 billion increment in income, with construction ($2.3 billion) and manufactur- ing ($1.5 billion) reaping major portions of that income gain. These benefits were especially welcome in 2009 and 2010 as the nation suffered from a severe economic downturn and various stimulus interventions were effected: HTC-inspired investment is stimulus on steroids.
HTC State Level Impacts
The economic impact from the federal tax credit-aided historic rehabilitation stimu- lates the state-level as well as the national economy. For example, in FY 2009 and 2010, Missouri had about $974 million in federal HTC-supported rehabilitation. The national impacts of that investment included about 16,700 jobs generating an ad- ditional $1.9 billion in output, $695 million in income, $920 million in GDP, and $219 million in taxes. At the state of Missouri level, the FY 2009 and 2010 $974 million in historic rehabilitation spending translates to 12,400 jobs generating $1.2 billion in out- put, $523 million in labor income, $641 million in gross state product (GSP), and $199 million in taxes. The in-state wealth (GSP minus business-paid federal taxes) resulting from rehabilitation expenditures amounts to $569 million, indicating a high 89 per- cent retention rate. Similar high state-level retention rates of the economic benefits from the HTC characterize other locations as well. (See Summary Exhibits 4 and 5 for greater detail.)
Comparison of the HTC to the Economic Impacts of Non-Preservation Investments
How does tax credit-aided historic rehabilitation fare as an economic pump-primer vis-à-vis other non-preservation investments? The short answer is quite well. Numer- ous studies conducted by Rutgers University in states throughout the country have shown that a $1 million investment in historic rehabilitation realizes a markedly bet- ter economic effect in many places in the United States with respect to employment, income, GSP, and state-local taxes compared to a similar increment of investment (i.e. $1 million) in an array of residential and nonresidential new construction (including
6 EXECUTIVE SYNTHESIS | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
building highways—a stimulus favorite) or a $1 mil- Healing Center, New Orleans, Louisiana: This community center in lion investment in an array of important business the city's St. Claude corridor will be activities, such as manufacturing (e.g., machinery anchored by a co-op grocery store. The former furniture store was rehabilitated and automobile), and services (telecommunica- using $2,358,727 in federal GO Zone tion). It is not a question of historic rehabilitation Historic Tax Credits as well as Louisiana State Historic and federal and state New as opposed to other pursuits, but rather historic Markets Tax Credits. rehabilitation joining in a holistic fashion the many activities of the broader economy so as to realize the commendable strong eco- nomic "bang for the buck" offered by that historic rehabilitation.
HTC Impacts on Housing and Downtown Revitalization
Spatial analysis by Rutgers University6 of the locations within states that use fed- eral HTCs show widespread utilization, that is, many areas benefit; yet there is an understandable clustering of more intense HTC activity in urban and rural centers. Bolstering these centers through HTC investment is especially important for com- bating the adverse effects of sprawl and furthering smart growth. In Missouri, for example, the highest concentration of federal HTC activity by dollar investment in 2009 included such communities as St. Louis, Kansas City, Columbia, Springfield and St. Joseph. Other Missouri communities with federal HTC investment included Excelsior Springs, Maplewood, Hannibal and Lebanon as examples. Further spatial
6 This research was conducted by Luke Drake and David Listokin.
7 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
analysis by Rutgers University of the micro-level location of federal HTC activity shows that the hotspots of investment are typically in areas with the lowest house- hold incomes and other measures of distress; thus this federal HTC is aiding loca- tions in need. An example of this is the distribution of FY 2009 HTC investment in the St. Louis Metropolitan Statistical Area (MSA) that is shown in Summary Exhibit 10. Clearly evident is the disproportionate concentration of federal HTC dollar activ- ity in the MSA core and in the portions of the MSA with the lowest median house- hold income.
Case study analysis of federal HTC implementation further points to many addition- al quantitative and qualitative benefits of the federal tax credit, including providing affordable housing, fostering downtown economic development and encouraging adaptive reuse.
The historic preservation, affordable housing, economic development and other benefits of the federal HTC are augmented by combining the federal HTC with other tax credits. In an exemplary case of creative federalism, about 33 states have state- level HTCs of their own; they typically "piggyback" the federal HTC. The federal (and state) HTCs have further been "twinned" with the federal Low-Income Housing Tax Credit (LIHTC) and the federal New Markets Tax Credits (NMTC).
An NTCIC study of the first 4 Rounds of NMTC program has shown that about one in 10 transactions and approximately 20% of all Qualified Equity Investments in- volve the twinning of historic and New Markets Tax Credits. NPS statistics show that two-thirds of all approved HTC projects since 2002 have been located in NMTC-eligible low-income census tracts. No similar studies or statistics exist for the twinning of LI- HTC and federal HTCs, but anecdotal evidence suggests that as much as 15% of all LIHTC affordable housing projects are adaptive reuses of histor- ic properties that also generate HTCs.
Audobon Hotel, New Orleans, Lousiana: This strategic Canal Street property utilized $2,819,135 in federal GO Zone (26%) Historic Tax Credit equity, in addition to financing generated by the Louisiana State Historic and New Markets Tax Credits. The new use will be a 168-room Indigo Hotel.
8 EXECUTIVE SYNTHESIS | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
These various tax credit combinations have produced powerful housing results (Summary Exhibit 9). For example, from the inception of federal historic preserva- tion tax incentives until today (FY 1978-2010), 432,401 housing units have been completed. Of that total, 229,400 or 53 percent, were existing housing units that were rehabilitated, and 203,005 or 47 percent were "newly" created housing units (e.g., housing resulting from the adaptive reuse of once-commercial space). Of the 432,401 total housing units completed under federal historic preservation tax incen- tive auspices since the late 1970s, 114,084, or 26 percent, were affordable to low- and/or moderate-income (LMI) families (This was often accomplished by combining the federal HTC with the LIHTC.) That averages to about 3,450 LMI units per year. In FY 2009 and 2010 combined, 12,224 LMI units were produced under the federal HTC. The federal HTC is largely invisible in the housing "radar", yet it deserves much greater attention, given its total and LMI housing unit production. Further, the LMI share of HTC housing units is growing. From FY 2005 through FY 2010, on average, 38 percent of all federal HTC housing has been at LMI levels. In FY 2009, the LMI share of all HTC units reached a high of 49 percent (Summary Exhibit 9).
Summary of Cumulative HTC Impacts
In short, the federal HTC is a "good" investment for the nation, states, and local communities. We illustrate some facets of this by considering the cumulative (FY 1978-2010) program to date.
• An inflation-adjusted (2010 dollars) $17.5 billion federal historic tax credit cost to date has encouraged a five times greater amount of historic rehabilitation ($90.4 billion). • This rehabilitation investment has generated about 2.0 million new jobs and bil- lions of dollars of total (direct and secondary) economic gains. • The cumulative impacts to the national economy include: output ($210.2 billion), gross domestic product ($103.8 billion), income ($76.3 billion), and taxes ($30.5 billion, including $22.3 billion in federal tax receipts). • The leverage and multiplier benefits as noted above give support to the argu- ment that the federal HTC is a strategic investment. Our results also show that the federal cost of the FY 1978-2010 HTC—a cumulative $17.5 billion in 2010 inflation-adjusted dollars—is more than offset by the $22.3 billion in federal taxes realized to date.
In considering the federal HTC "cost-benefit," it should further be realized that our quan- tification of HTC economic and tax consequences are understated for various reasons:
For various technical reasons, our estimate of the total rehabilitation cost associated with the federal HTC (i.e., $90.4 billion in constant 2010 dollars over FY 1978-2010 and $8.8 billion in FY 2009 and 2010 combined) is likely understated. In tandem then, the economic and tax effects flowing from the rehabilitation investment are understated as well.
9 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
Significant economic and tax benefits accrue from the federal HTC that have not been quantified by Rutgers University because they went beyond the scope of the cur- rent investigation. The latter focused solely on the economic effects from the federal HTC-associated construction—a one-time investment. In fact, there are recurring year- by-year economic returns from the federal HTC. These recurring benefits include the federal HTC's investment enhancing tourism, specifically heritage and cultural travel (a multi-billion dollar industry); the historic tax credit providing adaptively-reused and other commercial space for businesses that annually have a payroll and tax payments; and the positive federal HTC investment impact on property values, which then yearly have tax, wealth, and other benefits. We have also not counted the well known (though difficult to measure) tendency of historic rehabilitation to boost investor and neighbor- hood confidence and induce a broader trend toward community-wide revitalization.
In a related fashion, we are not capturing how the enhanced "quality of life" (QOL) re- alized by the federal HTC furthers the national and state economy and public tax gen- eration (e.g., through such means as attracting the "creative class" and more generally from enhanced worker efficiency, reduced medical expenses, and the like). In short, the full economic and tax benefits from the federal HTC are yet greater than the already considerable economic and tax consequences documented in the current study.
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SUMMARY EXHIBIT 1 Summary of Federal Historic Tax Credit Statistics
I. Investment/Tax Credit Component FY 1978-2010 FY 2009 and 2010 Nominal$d Real$e Real$e
TOTAL ANNUAL TOTAL ANNUAL TOTAL AVERAGE AVERAGE
Approved proposed (for tax $65.4 $2.0 $106.7 $3.2 $8.1 credit) rehabilitation ("Part 2") Certified (for tax credit) $48.9 $1.5 $81.4 $2.5 $7.9 rehabilitation51 ("Part 3") Total rehabilitation costb $54.3 $1.7 $90.4 $2.7 $8.8 Federal tax creditc $10.2 $0.3 $17.5 $0.5 $1.6
Dollar amounts above are expressed in billions
II. Economics Impacts FY 1978-2010 FY 2009 and 2010
TOTAL ANNUAL AVERAGE TOTAL
Jobs (in thousands) 2,020.8 61.2 145.1 Income $76.3 $2.3 $6.2 Gross Domestic Product $103.8 $3.2 $8.4 Output $210.2 $6.4 $16.6 Taxes—All Government $30.5 $0.9 $2.2 Taxes—Federal Government $22.3 $0.7 $1.5 Taxes—State Government $4.2 $0.1 $0.4 Taxes—Local Government $4.1 $0.1 $0.4
Dollar amounts above are expressed in billions of real 2010e
Technical Background: The HTC has a multi-step application process encompassing "Part 1" (evaluation of the historic significance of the prop- erty), "Part 2" (description of the rehabilitation work), and "Part 3" (request of certification of completed work). With respect to the HTC's dollar magnitude, the most complete data is for the approved proposed (for tax credit) rehabilitation investment ("Part 2"). We do not have as good data on the year-by-year certified (for tax credit) rehabilitation ("Part 3) volume over the full FY 1978-2008 period. (Only a portion of the "Part 2" rehabilitation is ultimately certified as "Part 3.") Further, we do not have specific data on the total rehabilitation investment associated with the HTC. By way of background, both "Part 2" and "Part 3" rehabilitation statistics include only what are termed "eligible" or "qualified" items (or Qualified Rehabilitation Expenditures—QRE) for the tax credit as opposed to what are called "ineligible" or "non-qualified" costs. Examples of "eligible"/"qualified" items include outlays for renovation (walls, floors, and ceilings, etc.) construction-period interest and taxes, and architect fees; examples of "ineligible"/"non-qualified" costs include landscaping, financing and leasing fees, and various other outlays (e.g. , for fencing, paving, sidewalks and parking lots). While the "ineligible"/"non-qualified" expenses do not count for tax credit purposes, they are practically a component of the total rehabilitation investment borne by the HTC-oriented developer and in fact, the total rehabilitation investment (including "ineligible"/"non-qualified" costs) help pump-prime the economy. Based on the best published data and through additional case studies con- ducted specifically for the purposes of the current investigation, Rutgers estimates some of the "missing information" noted above regarding the cumulative HTC investment over FY 1978-2010.
a Data estimated from best available information
b Equals all rehabilitation outlays—both "eligible"/"qualified" expenses and "ineligible"/"non-qualified" costs. The total rehabilitation cost is estimated by dividing the "Part 3" investment divided by .9. Case study investigation suggests that the "Part 3" amount is closer to 85 percent of the total rehabilitation cost, however we elected to apply the .9 factor to be conservative, that is to derive a lower rather than a higher estimate of the total rehabilitation expense.
c Assumes a 25 percent HTC in FY 1978-FY 1986 and a 20 percent HTC in FY 1987-FY 2010. These percentages are applied to the certified rehabili- tation ("Part 3") d In indicated year dollars—not adjusted for inflation
e In inflation-adjusted 2010 dollars
SOURCES: Department of the Interior, National Park Service, Technical Preservation Services; National Council of State Historic Preservation Offices; and calculations by Rutgers University.
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SUMMARY EXHIBIT 2 Cumulative National HTC Economic Impacts: 1978-2010
Gross Domestic Product by Sector from Federal Historic Preservation Investment ($103,790 million cumulative, FY 1978-2010)
Government Services Finance, Ins., & Real Estate Retail Trade Wholesale Transport. & Public Utilities Manufacturing Construction 29,235 Mining Agri. Serv., Forestry, & Fish Agriculture $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 (millions of 2010 $)
Jobs Created by Sector from Federal Historic Preservation Investment (2,020,774 jobs cumulative, FY 1978-2010)
Government 8,744 Services Finance, Ins., & Real Estate Retail Trade Wholesale Transport. & Public Utilities Manufacturing Construction Mining Agri. Serv., Forestry, & Fish Agriculture
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 (jobs)
Income Created by Sector from Federal Historic Preservation Investment ($76,292 million cumulative, FY 1978-2010)
Government Services Finance, Ins., & Real Estate Retail Trade Wholesale Transport. & Public Utilities Manufacturing Construction Mining Agri. Serv., Forestry, & Fish Agriculture
$5,000 $10,000 $15,000 $20,000 $25,000 $30,000 (millions of 2010 $)
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SUMMARY EXHIBIT 3 National HTC Economic Impacts: 2009-2010
Gross Domestic Product by Sector from Federal Historic Preservation Investment ($8,419 million combined, FY 2009 and 2010)
Government Services Finance, Ins., & Real Estate Retail Trade Wholesale Transport. & Public Utilities Manufacturing Construction Mining Agri. Serv., Forestry, & Fish Agriculture
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 (millions of 2010 $)
Jobs Created by Sector from Federal Historic Preservation Investment (145,149 jobs combined, FY 2009 and 2010)
Government Services Finance, Ins., & Real Estate Retail Trade Wholesale Transport. & Public Utilities Manufacturing Construction Mining Agri. Serv., Forestry, & Fish Agriculture
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 (jobs)
Income Created by Sector from Federal Historic Preservation Investment ($6,224 million combined, FY 2009 and 2010)
Government Services Finance, Ins., & Real Estate Retail Trade Wholesale Transport. & Public Utilities Manufacturing Construction Mining Agri. Serv., Forestry, & Fish Agriculture
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 (millions of 2010 $)
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SUMMARY EXHIBIT 4 Employment Impacts to the National Economy from the Historic Tax Credit Rehabilitation Investment
FY 2009 and 2010
AKAK LEGEND Employment Number of Jobs
0-976 M 977-2,527 M 2,528-5,228 M 5,229-8,800 • 8,801-16,688
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SUMMARY EXHIBIT 5 Income Impacts to the National Economy from the Historic Tax Credit Rehabilitation Investment
FY 2009 and 2010
LEGEND Income Millions of 2010$
$0-$25 $26-$100 $101-$212 M $213-$375 M $376-$695
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SUMMARY EXHIBIT 6 Federal Historic Tax Credit, Fiscal Years 1978-2010
FISCAL YEAR INVESTMENT CUMALATIVE INVESTMENT ANNUAL TAX CREDIT CUMALITIVE ANNUAL (MILLIONS $» PART 2S) (MILLIONS $») PROJECTS APPROVED TAX CREDIT PROJECTS (PART 2S) APPROVED
1978 140 140 512 512 1979 300 440 635 1,147 1980 3 4 6 786 614 1,761 1981 738 1,524 1,375 3,136 1982 1,128 2,652 1,802 4,938 1983 2,165 4,817 2,572 7,510 1984 2,123 6,940 6,214 13,724 1985 2,416 9,356 6,117 19,841 1986 1,661 11,017 2,964 22,805 1987 1,084 12,100 1,931 24,736 1988 865 12,965 1,092 25,828 1989 927 13,894 994 26,822 1990 750 14,642 814 27,636 1991 608 15,250 678 28,314 1992 491 15,741 719 29,033 1993 468 16,209 538 29,571 1994 641 16,850 560 30,131 1995 812 17,662 621 30,752 1996 1,130 18,792 724 31,476 1997 1,720 20,512 902 32,378 1998 2,085 22,597 1,036 33,414 1999 2,303 24,900 973 34,387 2000 2,602 27,502 1,115 35,502 2001 2,737 30,239 1,276 36,778 2002 3,272 33,511 1,198 37,976 2003 2,733 36,244 1,270 39,246 2004 3,878 40,121 1,200 40,446 2005 3,127 43,248 1,101 41,547 2006 4,082 47,330 1,253 42,800 2007 4,346 52,676 1,045 43,845 2 0 0 8 5,641 57,317 1,213 45,058 2009 4,697 62,014 1,044 46,102 2010 3,418 65,432 951 47,053
a These figures are in nominal indicated year terms, that is not adjusted for inflation
SOURCES: Department of the Interior, National Park Service, Technical Preservation Services; National Council of State Preservation Offices; and calculations by Rutgers University
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SUMMARY EXHIBIT 7 Federal Tax Incentives for Rehabilitating Historic Buildings, Fiscal Years 1978-2010
Investments—Part 2s (Real 2010 $) — — — — — Investments—Part 2s (Nominal $) Approved Projects—Part 2s
FISCAL YEAR Notes: Tallies are Part 2s
SUMMARY EXHIBIT 8 Total Rehabilitation Costsa Associated with the Federal Historic Tax Credit, Fiscal Years 1978-2010
$6.0 COH CO
$5.0 u o r*—A /\ LLICM
i f $4.0 < ra ^ c Z o $3.0 <™ _i c
£ $2.0 H £ LUQ . =° ^ $1.0 lo i- co LU $0.0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 20 0 0 2002 2004 2006 2008 2010
FISCAL YEAR
Notes: Figures are estimated and are in inflation adjusted 2010 dollars. a Includes all rehabilitation outlays—both "eligible"/"qualifled" and "¡neligible"/"non-qualifled" expenses.
SOURCES: Department of the Interior, National Park Service, Technical Preservation Services; National Council of State Historic Preservation
17 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
SUMMARY EXHIBIT 9 Federal Historic Tax Credit Involving Housing, Fiscal Years 1978-2010
FISCAL YEAR TOTAL NUMBER OF NUMBER OF UNITS NUMBER OF UNITS TOTAL NUMBER OF PERCENT OF HOUSING UNITS REHABILITATED CREATED LOW-/MODERATE- UNITS COMPLETED COMPLETED INCOME UNITS THAT ARE LOW-/ MODERATE- INCOME
1978 6,962 3,876 3,086 1,197 17% 1979 8,635 4,807 3,828 1,485 17% 1980 8,349 4,648 3,701 1,435 17% 1981 10,425 6,332 4,093 3,073 29% 1982 11,416 6,285 5,131 2,635 23% 1983 19,350 12,689 6,661 3,792 20% 1984 20,935 16,002 4,933 142 1% 1985 22,013 16,618 5,395 868 4% 1986 19,524 12,260 7,264 640 3% 1987 15,522 11,306 4,216 1,241 8% 1988 10,021 7,206 2,815 592 6% 1989 11,316 7,577 3,739 2 , 0 3 4 18% 1990 8,415 6,098 2,317 1,993 24% 1991 5,811 4,081 1,730 1,288 22% 1992 7,536 5,523 2,013 1,762 23% 1993 8,286 5,027 3,259 1,546 19% 1994 10,124 6,820 3,304 2,159 21% 1995 8,652 5,747 2,905 2,416 28% 1996 11,545 5,537 6,008 3,513 30% 1997 15,025 5,447 9,578 6,239 42% 1998 13,644 6,144 7,500 6,616 48% 1999 13,833 4,394 9,439 4,815 35% 2000 17,266 5,740 11,530 6,668 38% 2001 11,546 4,950 6,596 4,938 43% 2002 13,886 5,615 8,271 5,673 41% 2003 15,374 5,715 9,659 5,485 36% 2004 15,784 5,738 10,046 5,357 34% 2005 14,438 5,469 8,969 4,863 34% 2006 14,695 6,411 8,284 5,622 38% 2007 18,006 6,272 11,734 6,553 36% 2008 17,051 6,659 10,392 5,220 31% 2009 13,743 5,764 7,979 6,710 49% 2010 13,273 6,643 6,630 5,514 42%
Total 432,401 229,400 203,005 114,084 26%
SOURCES: Department of the Interior, National Park Service, Technical Preservation Services; and calculations by Rutgers University
18 EXECUTIVE SYNTHESIS | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
SUMMARY EXHIBIT 10 2009 Federal Historic Tax Credit Value by Zip Code in St. Louis, Missouri
SOURCES: Rutgers University (Luke Drake) and the Department of the Interior, National Park Service, Technical Preservation Services
19
SECTION 1 Economic Impacts of the Federal Historic Tax Credit and the Importance of State Historic Tax Credits
Rutgers University has estimated the real (inflation-adjusted to 2010 dollars) total reha- bilitation investment throughout the United States that was enabled by the federal HTC at about $90.4 billion for the cumulative period FY 1978 through FY 2010 and approxi- mately $8.8 billion for the combined FY 2009 and FY 2010 period. These two total fed- eral tax credit-aided historic rehabilitation outlays can be translated into ensuing total economic benefits. Before quantifying these effects, we must explain what is meant by total economic impacts from an investment and how these are determined.
This study examines the total economic impacts of federal tax credit-aided histor- The real total rehabilitation investment ic rehabilitation, enc°m P a ssing both the enabled by the federal HTC at about $90.4 direct and multiplier effects. The direct impact component consists of labor and billion for the cumulative period FY 1978 material purchases made specifically for through FY 2010 and approximately $8.8 the rehabilitationactivit y . The ^mpe billion for the combined FY 2009 and FY effects incorporate what are referred to 2010 period as indirect and induced economic conse- . quences. The indirect impact component consists of spending on goods and services by industries that produce the items pur- chased for the historic rehabilitation activity. The induced impact component focuses on the expenditures made by the households of workers involved either directly or indirectly with the activity. To illustrate, lumber purchased at a hardware store for historic rehabilitation is a direct impact. The purchases of the mill that produced the lumber are an indirect impact. The household expenditures of the workers at both the mill and the hardware store are induced impacts. Economists estimate direct, indirect, and induced effects using an input-output (I-O) model. This study specifies the total economic effects of federal tax credit-aided historic rehabilitation through a state-of-the-art I-O model developed by the Rutgers University Center for Urban Policy Research (CUPR) for the National Park Service, Di- vision of Cultural Resources, National Center for Preservation Technology and Train- ing. The model is termed the Preservation Economic Impact Model (PEIM).
21 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
In the current analysis, the PEIM is applied to both cumulative (FY 1978 through 2010) federal tax credit-aided historic rehabilitation investment in the United States (about $90.4 billion in 2010 inflation-adjusted dollars) and to the two-year FY 2009 - 2010 tax credit-aided rehabilitation investment (about $8.8 billion in 2010 dollars) throughout the nation. In applying the cumulative analysis, we consider the effects of the $90.4 billion rehabilitation investment as if effected in one year (2010), rather than retroactively back- dating and applying the economic model for each of the 33 years encompassing the FY 1978-2010 study period. The results of the PEIM model include many fields of data. The fields most relevant to this study are the total impacts of the following:
JOBS: Employment, both part- and full-time, by place of work, estimated using the typical job characteristics of each industry. (Manufacturing jobs, for example, tend to be full-time; in retail trade and real estate, part-time jobs predominate.) All jobs generated at businesses in the region are included, even though the associated labor income of in-commuters may be spent out- side of the region. In this study, all results are for activities occurring within the time frame of one year. Thus, the job figures should be read as job-years, where several individuals might fill one job-year on any given project. INCOME: "Earned" or labor income, specifically wages, salaries, and propri- etors' income. Income does not include non-wage compensation (such as ben- efits, pensions, or insurance); transfer payments; or dividends, interest, or rents. WEALTH: Value added—the sub-national equivalent of gross domestic product (GDP). At the state level, this is called gross state product (GSP) or, in some public data, GDP by state. Value added is widely accepted by econo- mists as the best measure of economic well-being. It is estimated from state- level data by industry. For a firm, value added is the difference between the value of goods and services produced and the value of goods and non-labor services purchased. For an industry, therefore, it is composed of labor income (net of taxes); taxes; non-wage labor compensation; profit (other than propri- etors' income); capital consumption allowances; and net interest, dividends, and rents received. OUTPUT: Of the measures in any input-output report, perhaps the least well-defined one is that labeled "output." Output is defined as the value of shipments, which is reported in the Economic Census. The value of shipments is very closely related to the notion of business revenues. Thus it is NOT the "output" to which most other economists refer and which is better known as "gross domestic product" (GDP). TAXES: Tax revenues generated by the activity. The tax revenues are detailed for the federal, state, and local levels of government. Totals are calculated by industry. Federal tax revenues include corporate and personal income, Social Security, and excise taxes, estimated from calculations of value added and income generated.
22 EXECUTIVESYNTHESIS|SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
State tax revenues include income, excise, sales, and other state taxes, estimated from calculations of value added and income generated (e.g. visitor purchases). Local tax revenues include payments to sub-state governments, mainly through property taxes on new worker households and businesses. Local tax revenues can also include sales and other taxes.
Exhibit 2.2 shows the cumulative economic impacts of the federal tax credit-aided his- toric rehabilitation over FY 1978 through FY 2010—a span of 33 years. Exhibit 2.3 quanti- fies the two year economic impacts of the federal tax credit-aided historic rehabilitation in FY 2009-FY 2010 alone.
The major data reported in these two exhibits is organized into the following sections:
I. Total Effects II. Distribution of Effect/Multiplier III. Composition of Gross State Product IV. Tax Accounts V. Effects Per Million Dollars of Initial Expenditure
Each of these sections is described in detail in Exhibit 2.3. With this background present- ed, we can turn to our findings.
ECONOMIC IMPACTS OF CUMULATIVE FEDERAL HISTORIC TAX CREDIT-AIDED TOTAL REHABILITATION INVESTMENT IN THE UNITED STATES (FY 1978-2010)
Between FY 1978 and 2010, an estimated cumulative total of about $90.4 billion of historic rehabilitation was aided by the federal historic tax credit. The total eco- nomic impacts to the nation from the $90.4 billion in cumulative historic rehabilita- tion spending include about 2.0 million jobs generating an additional $210.2 billion in output, $76.3 billion in income, $103.8 billion in gross domestic product (GDP), and $30.5 billion in taxes ($22.3 billion federal government taxes, $4.2 billion state gov- ernment taxes, and $4.1 billion local government taxes). (See Exhibit 2.2).
The benefits that accrue from the cumulative investment in federal tax credit-aided historic rehabilitation projects are extensive. Almost all sectors of the nation's economy see their payrolls and production increased (Exhibit 2.2). Just under 30 percent of the national-based jobs from the cumulative $90.4 billion tax credit-aided rehabilitation investment (approximately 592,000 of 2,021,000 jobs) and national gross domestic product ($29.2 billion of $103.8 billion GDP) created by historic rehabilitation aided by the cumulative federal HTC accrue to the nation's construction industry; this is as one would expect, given the share of such projects that require the employment of building contractors. Other major economic sector beneficiaries are services (360,000 jobs, $13.7 billion in GDP) as well as manufacturing (411,000 jobs, $26.6 billion GDP) and the retail trade (298,000 jobs, $7.8 billion GDP) sectors. The finance insurance and real estate (FIRE) sector garners 154,000 jobs and $13.7 billion GDP. As a result of the
23 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
interconnectedness of the national economy and because both direct and multiplier effects are considered, other segments of the national economy not immediately associated with historic rehabilitation are affected as well, such as agriculture, min- ing and transportation and public utilities, or TPU. (See Exhibit 2.2 for details.) For instance the TPU sector realizes a gain of 79,000 jobs and about $6.0 billion of GDP.
Exhibit 2.4 summarizes the key economic effects (employment, income, GDP, out- put, and taxes) by year of the federal tax credit-aided rehabilitation investment for each of the 33 years spanning the FY 1978-FY 2010 study period.7 For instance, in inflation-adjusted dollars, 1985 was the near peak year8 of investment when $4.7 bil- lion of total federal tax credit-aided rehabilitation investment occurred. (This timing was no accident as the 1985 peak reflected the run-up of investor interest evoked by the expanded scope of the tax credits brought about by the Economic Recov- ery Tax of 1981.) As the near peak year of investment, 1985 would also have real- ized more significant economic benefits from the federal tax credit-aided activity, such as about 105,000 jobs and $4.0 billion income. (These and the other values in Exhibit 2.4 are in 2010 terms.) See Exhibit 2.4 for more detail on the 1985 economic- effects from the HTC as well as for earlier or later years.
ECONOMIC IMPACTS OF FEDERAL HISTORIC TAX CREDIT-AIDED REHABILITATION INVESTMENT IN THE UNITED STATES, COMBINED FY 2009 AND 2010
As noted earlier, the federal historic tax credit-aided rehabilitation investment in FY 2009 and 2010 combined is about $8.8 billion. The total national economic impacts of this include 145,000 jobs generating $16.6 billion in output, $8.4 billion in GDP, $6.2 billion in income and $2.2 billion in total taxes ($1.5 billion federal government, $0.4 billion state government, and $0.4 billion local government). (See Exhibit 2.3.)
As with the cumulative FY 1978-FY 2010 rehabilitation effects, the two-year FY 2009 and 2010 investment in historic rehabilitation accrues benefits across the national economy (Exhibit 2.3). For instance, of the $8.4 billion in GDP, $2.7 billion, $2.4 billion, and $1.1 billion are found among the following three economic sectors respectively: construction, manufacturing, and services. GDP gains of about $500 to $700 mil- lion apiece are realized by the retail trade industry and as well as the finance, insur- ance, and real estate industry. A GDP addition of about $300 million is realized by the wholesale sector. (See Exhibit 2.3 for further details.)
The national impacts of the two-year FY 2009 and 2010 federal tax credit-aided reha- bilitation investment from each state as of that year is summarized in Exhibit 2.5. For instance, the eleven states shown below had considerably varying levels of tax credit investment as of FY 2009 and 2010 and with that, very different levels of national-
7 This should be interpreted as follows in applying the cumulative FY 1978-2010 analysis. We consider the effects of the $90 billion investment as if effected in one year, namely 2010. Thus, when Exhibit 2.4 shows the economic effects for each year over FY 1978-2010, we are not backdating the model to each of these years, but rather indicating what each year's investment realizes in 2010 values.
8 The absolute peak was in 2009 when the total rehabilitation investment related to the federal historic tax credit reached about $5.0 billion in inflation-adjusted 2010 dollars.
24 EXECUTIVESYNTHESIS|SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
level job and income effects. While the effects to the nation are shown, as we shall see below, most of the benefit is retained within each state's boundaries.
State FY 2009 and 2010 HTC-Aided Selected National Economic Impacts Rehabilitation Investment JOBS INCOME (in 2010 $ millions) (IN 2010 $ MILLIONS)
Alabama $21.6 399 $13.7 Florida $381.4 6,647 $269.4 Illinois $216.2 3,188 $157.4 Indiana $168.3 2,950 $120.3 Michigan $528.8 8,402 $374.6 New York $491.7 8,135 $350.4 Ohio $238.5 4,284 $169.8 Oregon $195.8 3,463 $142.1 Pennsylvania $380.0 6,176 $275.8 Virginia $727.9 12,250 $520.9 Washington $115.6 1,852 $82.9
The considerable state-level capture of the national-level economic effects from the federal tax credit-aided rehabilitation investment is illustrated through reconnais- sance investigation in three states: Illinois, Missouri, and Pennsylvania. In FY 2009 and 2010, the federal tax credit-aided rehabilitation investment in these three loca- tions amounted to $216.3 million, $974.1 million, and $380.0 million, respectfully. For these three states, we quantify national-level and state-level impacts, the latter a new geographic analysis not yet conducted in this study. The results are summarized in Exhibit 2.6.
For example, the national economic impacts of the FY 2009 and 2010 $974.1 million in tax credit-aided historic rehabilitation investment in Missouri include 16,700 jobs generating an additional $1.9 billion in output, $695 million in income, $920 million in GDP, and $161 million in taxes (Exhibit 2.6, upper portion). The Missouri retained por- tion (Exhibit 2.6, lower portion), of the FY 2009 and 2010 $974.1 million in historic rehabilitation spending translates to 12,400 jobs generating $1.2 billion in output, $523 million in labor income, $641 million in gross state product (GSP), and $199 million in taxes. The in-state wealth (GSP minus business-paid federal taxes) result- ing from rehabilitation expenditures amounts to $569 million, indicating a high 89 percent retention rate.
Similar high state-level retention rates characterize Illinois and Pennsylvania as well. (Compare the state-level economic impact portion of Exhibit 2.6 to the national-level economic impact portion of same exhibit.) It stands to reason that the lion's share of
25 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | SECTION 1
the economic benefits from the construction activity aided by the federal tax credit stays within a given state's boundaries as opposed to "leaking" elsewhere9. That is borne out by the three states (Illinois, Missouri, and Pennsylvania) reconnaissance investigation and likely characterizes most other states as well. Thus, much of the national-level impacts from the FY 2009 and 2010 federal historic tax credit-aided investment that occurs in each state (Exhibit 2.5) is likely retained at the state level.
STATE HISTORIC TAX CREDIT AND LESSONS FROM THE HEARTHLAND-KANSAS
A total of 33 states have already supplemented the federal historic tax credit (HTC) with a state HTC of their own; an additional four states have legislation introduced to create a state level credit that would supplement the federal HTC. These 37 innovating states are shown in Exhibit 2.7 with further detail on these state HTCs available from Novogradac and Company LLP.
An example of the prowess of a state HTC is provided by the Kansas state historic tax credit (KHTC). We summarize the following description of the KHTC from Rutgers University research completed in March 2010.10 (Note: some of the specifics of the KHTC have changed since the release of this report).
Implemented in state fiscal year 2002, the KHTC provides for a state income tax credit equal to 25 percent (30 percent for non-profits) of qualified expenses on qualified historic structures used for either income-producing or non-income pro- ducing purposes. The KHTC builds from and adds to a federal HTC (20 percent) which has been in place for decades. As other state historic tax credits and reflect- ing the best of creative federalism, the KHTC is more flexible to use than the fed- eral HTC. Examples of more flexible KHTC provisions include: an ability to apply the credit to historic residences (the federal HTC is restricted to income-producing properties only), a more realistic minimum investment requirement (the federal re- quirements in this regard disqualifies many worthwhile projects), the right to trans- fer the state tax credits so as to make these more attractive to investors (prohibited in the federal HTCs), and the ability for non-profit organizations to use the state HTC (severely limited with respect to the federal HTC).
The KHTC may be used in combination with the federal HTC (thus offering a com- bined credit of 45 percent) or only the 25 percent state tax credit may be used (e.g., in instances where the federal HTC is ineligible, such as the rehabilitation of a resi- dence as opposed to an income-producing property).
From FY 2002 through FY 2009, the KHTC has aided about 540 completed projects with an aggregate estimated total project dollar cost11 of $245 million, or $271 million in inflation-adjusted (2009) dollars. A state tax credit of about $53 million, or $69 million in inflation adjusted dollars, enabled the rehabilitation investment: an approxi-
9 The amount of "leakage" will vary by state, for instance, whether or not a state can supply the steel and lumber used in renovation.
10 David Listokin, Michael Lahr, McCaela Daffern, David Stanek and Deb Sheals, Economic Benefits and Impact of Historic Rehabilitation Tax Credits in Kansas. Research conducted by the Rutgers University Center for Urban Policy Research for the Kansas Preservation Alliance. March 2010.
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mate 1 to 4 tax credit to investment ratio— that reflects the typical 25 percent KHTC.
The KHTC has been used widely in Kan- sas—in about 50 counties—because many locations in this state have tax credit-eligible buildings. These buildings need rehabilitation which is abetted by the tax credit's financial incentive. The overall widespread geographic incidence of the Kansas historic tax credit is shown in Exhibit 2.8, which indicates the Kansas county distribution of the credit by project cost (totaling to $245 million).
While there is general widespread use of the state historic tax credits in Kansas, there are "hotspots" of more intense utilization of the program (see Exhibit 2.8) reflecting under- standably such factors as the clustering of the state's population and business activity (e.g., more in the Kansas River Valley and Central Wichita regions and less in rural western Kansas) and other influences (e.g., the distribution of the state's older urban and rural centers and varying local knowl- Cleveland Institute of Art (CIA) McCullough Center, edge of and interest in the program). Cleveland, Ohio: The Cleveland Institute of Art received a 2011 Preservation Award from the Cleveland Restoration Society and AIA Cleveland commending the renovation of the 96-year- What is the nature of the local areas where old Joseph McCullough Center for the Visual Arts on Euclid the KHTC has been used? We conclude this Avenue. "We are delighted to receive this recognition from the Cleveland Restoration Society and AIA Cleveland," said CIA chapter by describing selected population President Grafton J. Nunes. and housing characteristics of the zip codes where the KHTC has been used (all zip codes and "top 10" KHTC activity zip codes) and how these compare to the average for all zip codes in Kansas. The information is summarized in Exhibit 2.9. It shows that relative to the population and housing charac- teristics of all zip codes in Kansas, zip codes in this state where the Kansas historic tax credit has been used (both all such zip codes and "top 10" KHTC activity zip codes) have the following relative characteristics:
1. Higher density (population per square mile) 2. Higher share of population classified as "urban" 3. Greater minority population (i.e., higher percentage of non-whites and Hispanics) 4. Lower median household income and higher economic distress (as measured by percentage in poverty and percentage unemployed)
11 This cost is for the total rehabilitation outlay which includes both "qualifying expenses"—the portion of total rehabilitation costs that qualify for the state tax credit (e.g., rehabilitation of walls, door and windows; construction-period interest and architect fees) and "non-qualifying expenses"—outlays that are not eligible for the state tax credit (e.g., infrastructure, parking lots, sidewalks and landscaping).
27 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
5. Higher share of renter-occupied housing (as opposed to owner-occupied) 6. Similar housing value (for owner-occupied home) 7. Greater housing affordability problem (as measured by households paying more than 30 percent of their income for housing expenses) These characteristics of the local "hotspots" of KHTC activity strongly suggest that the program is aiding areas of higher stress and need.
The KHTC has markedly enhanced HTC investment in Kansas. In the 21-year pre- Kansas HTC period, there were a total of 50 federal HTC projects or an annual average of 2.4 projects per year. In the 8 year post-Kansas HTC period, there was an approximate tenfold increase to 542 Kansas HTC projects (both state-alone and state-and-federal-combined) and the annual average project volume increased almost 30 times to 68 HTC projects yearly. Rehabilitation project cost also mush- roomed. In the 21 year pre-Kansas HTC period, a total of $114 million (inflation- adjusted 2009 dollars) was expended on federal HTC-assisted projects, or an average of about $5.4 million per year. In the 8-year span (FY 2002-2009) when the Kansas HTC has been in effect, there was almost a two and a half-fold increase in Kansas HTC projects (again both state-alone and state-and-federal-combined) to $271 million and the annual average project volume rose six-fold to $33.9 million (all inflation-adjusted to 2009 dollars).
Others observing this before-and-after picture have remarked on the spurt of tax credit-aided historic rehabilitation investment that took place in Kansas after the state tax credit was put in place. The following quote from the Kansas State His- torical Society (2006) is illustrative:
In Kansas, the federal tax credit program has been active since the late 1970s, but the activity has been very limited in comparison to other states. For many years, Kansas' neighbor to the east, Missouri, ranked at the top of the list for numbers of projects and for investments by property owners in these rehabili- tations. Kansas saw fifty federal tax credit projects between 1980 and 2001... During those years, Kansas ranked between thirty-second and forty-eight among the states and territories for numbers of projects and amounts invested.
Beginning in 2001, Kansas added a second tax credit tool: its State Rehabilita- tion Tax Credit Program...Kansas has seen more federal tax credit projects and more investment in historic rehabilitation in the last five years than in the previ- ous twenty. Since 2001, sixty-five federal tax credit projects were completed, with an additional 173 new state tax credit projects. These 238 projects repre- sent an investment of more than $98 million in Kansas' historic properties.
While there are many influences on the magnitude of tax credit-aided investment in historic rehabilitation, such as the varying market demand-supply, bank loan availability, and interest rates linked to the fluctuating national and state economic and real estate cycles, the evidence in Kansas and other states (e.g., Missouri) sug- gests that the presence of a state tax credit and the terms of that credit do influ- ence investment in the historic building stock.
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What is the overall impact of the state historic tax cred- it program on the state's economy? The short answer is quite substantial for major economic benefits have ensued from the KHTC-aided investment (Exhibit 2.10). The in-state (to Kansas) total (direct and multiplier) economic impact from the $271 million of KHTC-assist- ed rehabilitation include 4,443 jobs generating $323 million in output (total value of economic shipments), $142 million in labor income, $183 million in gross state product or GSP (wealth or value added at the state level), and $56 million in taxes ($41 million federal, $8 million state, and $7 million local).
The benefits that accrue to Kansas from the cumulative investment in tax credit-aided historic rehabilitation projects are extensive. Almost all sectors of the state's economy see their payrolls and production increased. Just under half of the Kansas-based jobs from the cumulative ($271 million) tax credit-aided rehabilita- tion investment (2,003 of 4,443 jobs) and Kansas gross state product ($84.8 million of $182.9 million GSP) cre- ated by historic rehabilitation within Kansas accrue to the state's construction industry. This is as one would expect, given the share of such projects that require Mayo 420, Tulsa, Oklahoma: Opened in 1910, the employment of building contractors. Other Kansas Mayo 420, at Fifth and Main streets is one of Tulsa's major beneficiaries are services (832 jobs, $27.6 mil- oldest buildings. It is also one of Tulsa's more historic structures and is on the National Register of lion in GSP) as well as the retail trade (605 jobs, $14.4 Historic Places. Its roots are deep in the history of million GSP) and manufacturing (500 jobs, $26.1 million Tulsa's oil boom. GSP) sectors. As a result of the interconnectedness of a state's economy and because both direct and multiplier effects are considered, other sectors of the economy not immediately associated with historic rehabilita- tion are affected as well, such as agriculture, mining and transportation and public utilities (Exhibit 2.10).
How does tax credit-aided historic rehabilitation fare as an economic pump-primer vis-à-vis other non-preservation investments? The short answer is quite well. A $1 mil- lion investment in historic rehabilitation in Kansas realizes a markedly better econom- ic effect to Kansas with respect to employment, income, GSP, and state-local taxes compared to a similar increment of investment (i.e. $1 million) in an array of residen- tial and nonresidential new construction (including building highways) in Kansas or a $1 million investment in an array of business activities important in Kansas, such as manufacturing (e.g., electrical machinery and automobile), agriculture (wheat farm- ing), and services (telecommunication). It is not a question of historic rehabilitation as opposed to other pursuits, but rather historic rehabilitation joining in a holistic fashion the many activities of the broader economy in Kansas so as to realize the commend- able strong economic "bang for the buck" offered by that rehabilitation.
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Case study analysis of KHTC implementation points to many additional qualita- tive benefits of the state tax credit, ranging from providing affordable housing to encouraging downtown economic development. For instance, an observer of the Philip Hardware Store rehabilitation concluded that the rehabilitation of the store and other projects in Hays "would not have been possible to date without the tax credit programs. The funds associated with redevelopment cost exceed the amounts that can be satisfied or bor- rowed, so the tax credits provide the A Leavenworth County commissioner necessary incentive to continue with described the renovated county the projects." courthouse as a "masterpiece" and noted The cases have also sprouted local that the refurbished building has been economic "shoots." For example, in the Eagle's Lodge project, almost all very popular with the general public. the $800,000 spent to rehabilitate the building occurred in Wichita or environs; all of the contractors and suppliers of material were from Wichita or nearby towns. The property owner is now paying more than five times as much property tax as he was before the rehabilitation.
The case studies also point to how the KHTC (as well as other allied programs) have helped foster the stabilization-revitalization of older yet important neigh- borhoods in Kansas and have encouraged adaptive reuse, sometimes with the added bonus of providing affordable housing. To illustrate, the Roosevelt-Lincoln project converted a recently vacated public school in downtown Salina into 61 low-income senior apartments; a property once described by the local newspaper as having the potential to become a "conspicuous downtown eyesore" is now an architectural gem in the center of the community. Concerning the Eagle's Lodge rehabilitation and other KHTC efforts in Wichita, the city's senior planner conclud- ed that "the historic tax credits are an invaluable tool for relocating businesses in the downtown area." A Leavenworth County commissioner described the renovat- ed county courthouse as a "masterpiece" and noted that the refurbished building has been very popular with the general public.
30 SECTION 1 | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
EXHIBIT 2.1 Explanation of Division-Level Economic Impacts Specified in the Current Study
The economic divisional-level results specified in the current study (Exhibits 2.1 and 2.2) include the following sections explained below.
SECTION I—TOTAL EFFECTS Total effects by division including both direct and multiplier (indirect and induced) effects.
SECTION II—DISTRIBUTION OF EFFECTS MULTIPLIER 11.1 Sum of all division direct effects 11.2 Sum of all division multiplier (indirect and induced) effects 11.3 Total ef f e c t s (t h e su m of II.1 an d II.2) 11.4 Multiplier ratio of total effects (II.3) divided by direct effects (II.1)
SECTION III—COMPOSITION OF GROSS STATE PRODUCT This comprises:
111.1 Wages that are Net of taxes paid at the employer's locationa; 111.2 Taxes—local state and federal; and 111.3 Profits, dividends, rents, and other—which depending on the year of the GDP data used in the analysis, geography, and sector involved can be either positive or negative. 111.4 Total gross state product (sum of III.1, III.2, and III.3)—the latter is from the firms (or "business") expenditure accounts
SECTION IV—TAX ACCOUNTS The sum of taxes remitted by both business (see Section III) and households (where the lat- ter are not included in the section III gross state product) accounts. Section IV encompasses for both business and households:
IV.1 Wages—Net of taxes at place of work (for business) and place of residence for non in-commuting households. IV.2 Taxes by level of government (local, state, and federal) and type (e.g., for federal— general and social security). Note: the taxes in Section III are for business only while taxes in Section IV include the business taxes from Section III and add as well household-generated taxes. a Wages—Net of taxes are not the same as "income" (shown in Section I) for income includes wages, salaries, proprietor's income, and employer-paid taxes.
31 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
EXHIBIT 2.2 Economic and Tax Impacts of Federal HTC Investment on the Nation, Fiscal Years 1978-2010 ($90.4 Billion)
Economic Component
OUTPUT (0$) EMPLOYMENT INCOME (0$) GROSS DOMESTIC (JOBS) PRODUCT (0$)
I. TOTAL EFFECTS (Direct and Indirect/Induced)*
1. Agriculture 2,230,031.8 14,695 1S4,896.4 330,904.0 2. Agri. Serv., Forestry, & Fish 1,082,070.7 19,630 376,S66.3 586,265.8 3. Mining 3,945,475.2 16,448 961,677.6 1,687,869.5 4. Construction 41,056,241.6 591,911 23,909,149.6 29,234,541.1 5. Manufacturing 74,524,759.6 410,868 17,308,897.7 26,587,840.3 6. Transport. & Public Utilities 14,405,536.6 79,216 3,596,443.4 6,014,633.0 7. Wholesale 8,621,910.1 67,910 3,506,120.2 3,663,277.8 8. Retail Trade 13,417,654.7 297,977 4,937,027.0 7,811,589.3 9. Finance, Ins., & Real Estate 20,117,726.6 153,818 7,879,176.8 13,668,575.2 10. Services 29,732,142.6 3S9,SS7 13,337,163.1 13,696,204.0 11. Government 1,073,130.1 8,744 32S,263.2 509,031.1 Total Effects (Private and Public) 210,206,679.6 2,020,774 76,292,381.3 103,790,731.2
II. DISTRIBUTION OF EFFECTS/MULTIPLIER
1. Direct Effects 90,422,841.7 9S2,230 40,155,662.1 48,960,416.1 2. Indirect and Induced Effects 119,783,837.9 1,068,544 36,136,719.2 54,830,315.1 3. Total Effects 210,206,679.6 2,020,774 76,292,381.3 103,790,731.2 4. Multipliers (3/1) 2.32S 2.122 1.900 2.120
III. COMPOSITION OF GROSS STATE PRODUCT
1. Wages—Net of Taxes 64,768,823.1 2. Taxes 15,136,259.7 a. Local 2,322,977.9 b. State 2,283,606.2 c. Federal 10,529,675.7 General 2,349,936.8 Social Security 8,179,738.9 3. Profits, dividends, rents, and other 23,885,648.3 4. Total Gross State Product (1+2+3) 103,790,731.2
BUSINESS (000$) HOUSEHOLD (000$) TOTAL (000$)
IV. TAX ACCOUNTS
1. Income—Net of Taxes 64,768,823.1 76,292,381.3 2. Taxes 15,136,259.7 15,370,849.7 30,507,109.4 a. Local 2,322,977.9 1,741,616.5 4,064,594.4 b. State 2,283,606.2 1,870,357.0 4,153,963.2 c. Federal 10,529,675.7 11,758,876.1 22,288,551.9 General 2,349,936.8 11,758,876.1 14,108,812.9 Social Security 8,179,738.9 0.0 8,179,738.9
INITIAL EXPENDITURE IN DOLLARS 90,422,841,705.3
NOTE: Detail may not sum to totals due to rounding. TERMS: Direct Effects—the proportion of direct spending on goods and services produced in the specified region. Indirect Effects—the value of goods and services needed to support the provision of those direct economic effects. induced Effects—the value of goods and services needed by households that provide the direct and indirect labor.
32 SECTION 1 | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
EXHIBIT 2.3 Economic and Tax Impacts of Federal HTC Investment on the Nation, Fiscal Year 2009 and 2010 ($8.8 Billion)
Economic Component
OUTPUT (0$) EMPLOYMENT INCOME (0$) GROSS DOMESTIC (JOBS) PRODUCT (0$)
I. TOTAL EFFECTS (Direct and Indirect/Induced)
1. Agriculture 112,007.2 348 8,22S.4 23,778.2 2. Agri. Serv., Forestry, & Fish 79,497.S 684 26,9S3.1 50,455.1 3. Mining 261,042.9 1,311 69,870.S 120,075.4 4. Construction 3,888,303.0 S1,9S7 2,291,7S9.6 2,760,055.9 5. Manufacturing B,121,S11.B 3 3 , 3 S 6 1,4S2,441.3 2 , 375,450.6 6. Transport. & Public Utilities 911,444.2 S,690 238,S48.7 433,987.5 7. Wholesale 682,630.8 4,8S8 277,S93.4 294,274.1 8. Retail Trade B99,2BB.S 16,90S 331,068.7 518,758.6 9. Finance, Ins., & Real Estate 1,084,862.0 6,012 38S,127.3 686,974.3 10. Services 2,470,221.3 23,S01 1,119,710.9 1,119,887.6 11. Government 73,786.4 S28 22,343.1 34,889.2 Total Effects (Private and Public) 16,584,593.7 145,149 6,223,642.2 8,418,586.6
II. DISTRIBUTION OF EFFECTS/MULTIPLIER
1. Direct Effects 8,786,278.7 83,SS8 3,902,233.1 4,836,132.7 2. Indirect and Induced Effects 7,798,31S.0 61,S92 2,321,409.1 3,582,453.9 3. Total Effects 16,S84,S93.7 14S,149 6,223,642.2 8,418,586.6 4. Multipliers (3/1) 1.888 1.737 1.S9S 1.741
III. COMPOSITION OF GROSS STATE PRODUCT
1. Wages—Net of Taxes 5,237,825.4 2. Taxes 1,224,492.2 a. Local 280,929.4 b. State 230,822.5 c. Federal 712,740.2 General 186,632.9 Social Security 526,107.3 3. Profits, dividends, rents, and other 1,956,269.0 4. Total Gross State Product (1+2+3) 8,418,586.6
BUSINESS (000$) HOUSEHOLD (000$) TOTAL (000$)
IV. TAX ACCOUNTS
1. Income—Net of Taxes S,237,82S.4 4,907,000.1 2. Taxes 1,224,492.2 993,S96.3 2,218,088.5 a. Local 280,929.4 111,336.7 392,266.2 b. State 230,822.S 12S,948.0 356,770.6 c. Federal 712,740.2 7S6,311.S 1,469,051.7 General 186,632.9 7S6,311.S 942,944.4 Social Security S26,107.3 0.0 526,107.3
INITIAL EXPENDITURE IN DOLLARS 8,788,430,948.0
NOTE: Detail may not sum to totals due to rounding. TERMS: Direct Effects—the proportion of direct spending on goods and services produced in the specified region. Indirect Effects-—the value of goods and services needed to support the provision of those direct economic effects. induced Effects—the value of goods and services needed by households that provide the direct and indirect labor.
33 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVESYNTHESIS
EXHIBIT 2.4 Economic and Tax Impacts of Federal HTC Investment on the Nation by Year, Fiscal Years 1978-2010
Year Total Rehab. National Economic Impacts Tax Impacts (2010 $ thousands) Costs (2010 $ millions) EMPLOYMENT 2010 $ MILLIONS FEDERAL (JOBS) GDP OUTPUT
1978 $453,348,745 10,131 $382,504 $520,371 $1,053,903 $20,378 $20,827 $111,747 $152,952
1979 $1,269,558,573 28,372 $1,071,163 $1,457,247 $2,951,353 $57,068 $58,323 $312,937 $428,327
1980 $2,107,808,562 47,105 $1,778,419 $2,419,422 $4,900,039 $94,748 $96,831 $519,559 $711,138
1981 $2,839,431,235 63,456 $2,395,711 $3,259,206 $6,600,848 $127,635 $130,442 $699,898 $957,975
1982 $3,342,765,201 74,704 $2,820,388 $3,836,951 $7,770,952 $150,261 $153,564 $823,967 $1,127,791
1983 $4,700,182,249 105,040 $3,965,680 $5,395,046 $10,926,550 $211,278 $215,923 $1,158,560 $1,585,761
1984 $4,612,140,074 103,072 $3,891,397 $5,293,987 $10,721,878 $207,320 $211,879 $1,136,858 $1,556,057
1985 $4,718,203,915 105,443 $3,980,886 $5,415,732 $10,968,445 $212,088 $216,751 $1,163,002 $1,591,841
1986 $3,710,969,506 82,933 $3,131,053 $4,259,590 $8,626,920 $166,812 $170,479 $914,726 $1,252,017
1987 $2,901,946,096 64,853 $2,448,456 $3,330,963 $6,746,177 $130,445 $133,313 $715,308 $979,067
1988 $2,399,434,359 53,623 $2,024,473 $2,754,161 $5,577,984 $107,857 $110,228 $591,443 $809,528
1989 $2,199,682,441 49,159 $1,855,936 $2,524,878 $5,113,619 $98,878 $101,052 $542,205 $742,135
1990 $1,839,746,789 41,115 $1,552,248 $2,111,730 $4,276,874 $82,698 $84,517 $453,484 $620,699
1991 $1,586,640,954 35,458 $1,338,695 $1,821,206 $3,688,477 $71,321 $72,889 $391,095 $535,305
1992 $1,807,381,487 40,391 $1,524,940 $2,074,580 $4,201,634 $81,244 $83,030 $445,506 $609,779
1993 $1,301,809,885 29,093 $1,098,375 $1,494,266 $3,026,328 $58,518 $59,804 $320,886 $439,208
1994 $1,110,195,734 24,811 $936,704 $1,274,324 $2,580,881 $49,904 $51,002 $273,655 $374,561
1995 $1,253,677,888 28,017 $1,057,764 $1,439,019 $2,914,435 $56,354 $57,593 $309,022 $422,969
1996 $1,626,537,069 36,350 $1,372,357 $1,867,000 $3,781,223 $73,114 $74,722 $400,929 $548,766
1997 $1,423,390,664 31,810 $1,200,956 $1,633,821 $3,308,967 $63,983 $65,390 $350,855 $480,227
1998 $1,374,472,751 30,717 $1,159,683 $1,577,671 $3,195,247 $61,784 $63,142 $338,797 $463,723
1999 $1,814,454,681 40,550 $1,530,908 $2,082,699 $4,218,077 $81,561 $83,355 $447,249 $612,166
2 0 0 0 $3,094,717,701 69,161 $2,611,103 $3,552,233 $7,194,314 $139,111 $142,169 $762,825 $1,044,104
2001 $3,176,070,983 70,979 $2,679,743 $3,645,613 $7,383,437 $142,767 $145,907 $782,878 $1,071,552
2002 $3,550,452,381 79,346 $2,995,620 $4,075,342 $8,253,764 $159,596 $163,105 $875,160 $1,197,861
2003 $4,645,847,892 103,826 $3,919,837 $5,332,679 $10,800,239 $208,835 $213,427 $1,145,167 $1,567,429
2004 $3,327,176,562 74,356 $2,807,236 $3,819,058 $7,734,713 $149,560 $152,848 $820,124 $1,122,532
2005 $3,326,897,106 74,350 $2,807,000 $3,818,737 $7,734,063 $149,547 $152,835 $820,055 $1,122,438
2006 $3,281,778,903 73,341 $2,768,932 $3,766,949 $7,629,177 $147,519 $150,763 $808,934 $1,107,216
2007 $3,331,028,357 74,442 $2,810,485 $3,823,479 $7,743,667 $149,733 $153,025 $821,073 $1,123,832
2008 $3,482,931,160 77,837 $2,938,650 $3,997,839 $8,096,797 $156,561 $160,003 $858,516 $1,175,081
2009 $4,992,091,494 111,564 $4,211,973 $5,730,110 $11,605,154 $224,399 $229,333 $1,230,513 $1,684,246
2010 $3,820,070,310 85,371 $3,223,104 $4,384,820 $8,880,547 $171,716 $175,491 $941,619 $1,288,826
TOTALS $90,422,841,705 2,020,774 $76,292,381 $103,790,731 $210,206,680 $4,064,594 $4,153,963 $22,288,552 $30,507,109
SOURCES: Department of the Interior, National Park Service, Technical Preservation Services; National Council of State Historic Preservation Offices; and calculations by Rutgers University
34 SECTION 1 | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
EXHIBIT 2.5 Economic and Tax Impacts of Federal HTC Investment on the Nation by State, Fiscal Years 2009 and 2010
Year Total Rehab. I National EconomicImpacts Tax Impacts (2010 $ thousands) Costs (2010 $ millions) EMPLOYMENT 2010 $ MILLIONS LOCAL STATE FEDERAL TOTAL (JOBS)(JOBS) INCOME GDP OUTPUT
AL $21.6 399 $13.7 $25.8 $35.5 $383.6 $571.1 $3,298.4 $4,253.1
AK $23.7 0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
AZ $11.5 199 $ 6 . 8 $ 8 . 8 $22.2 $10,933.6 $7,060.6 $1,929.2 $19,923.4
AR $34.5 714 $24.0 $35.8 $63.7 $684.0 $1,249.0 $5,775.7 $7,708.7
CA $462.6 6,900 $335.4 $438.0 $905.1 $11,673.2 $18,665.9 $84,974.8 $115,313.9
CO $5.1 328 $3.6 $5.0 $9.6 $130.1 $165.7 $851.8 $1,147.7
CT $100.9 1,445 $70.3 $97.7 $184.6 $5,315.6 $4,507.3 $16,178.2 $26,001.1
DE $16.6 263 $11.7 $16.0 $31.0 $767.7 $806.0 $2,618.4 $4,192.1
DC $205.7 2,988 $138.7 $187.5 $362.1 $13,828.8 $5,546.6 $28,107.9 $47,483.3
FL $381.4 6,647 $269.4 $364.9 $713.9 $19,719.8 $11,918.4 $64,336.0 $95,974.2
GA $33.2 655 $23.0 $33.9 $60.7 $1,564.9 $1,519.3 $5,612.4 $8,696.5
HI $0.0 0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
ID $2.2 42 $1.5 $2.1 $3.9 $51.1 $53.1 $324.0 $428.2
IL $216.3 3,188 $157.4 $203.2 $422.3 $6,853.0 $6,220.4 $37,873.8 $50,947.1
IN $168.3 2,950 $120.3 $161.9 $321.2 $55,457.1 $36,951.8 $28,607.4 $121,016.3
IA $96.0 1,735 $65.0 $97.0 $168.9 $3,213.8 $2,859.6 $15,054.8 $21,128.2
KS $87.7 1,593 $61.3 $84.9 $162.6 $20,694.9 $14,397.4 $14,110.6 $49,202.8
KY $69.5 1,331 $48.1 $68.0 $127.3 $6,954.3 $5,538.7 $11,083.1 $23,576.2
LA $634.7 11,213 $452.4 $592.7 $1,202.4 $22,144.2 $23,067.7 $104,131.9 $149,343.7
ME $64.4 976 $37.9 $56.9 $123.5 $2,923.0 $2,717.1 $10,204.2 $15,844.3
MD $338.5 5,228 $237.6 $319.5 $627.9 $10,983.2 $9,937.3 $54,192.2 $75,112.7
MA $677.3 8,801 $475.3 $637.6 $1,261.2 $18,069.6 $21,800.7 $109,311.7 $149,182.1
MI $528.8 8,402 $374.6 $501.9 $997.5 $15,673.4 $19,060.1 $87,346.4 $122,079.8
MN $32.8 516 $23.0 $31.0 $61.2 $1,151.0 $1,302.1 $5,285.4 $7,738.5
MS $108.7 2,265 $75.7 $107.4 $200.2 $8,225.3 $6,552.9 $17,590.1 $32,368.4
MO $974.1 16,688 $694.7 $920.3 $1,852.0 $26,905.4 $30,775.5 $161,327.9 $219,008.7
MT $4.3 84 $3.0 $4.3 $8.0 $160.9 $149.1 $676.4 $986.4
NB $3.9 75 $2.7 $3.9 $7.0 $811.4 $554.4 $607.9 $1,973.7
NV $0.0 0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
NH $20.7 318 $14.4 $20.1 $38.3 $808.9 $287.6 $3,301.4 $4,397.9
continued on the next page
35 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVESYNTHESIS
EXHIBIT 2.5 (continued) Economic and Tax Impacts of Federal HTC Investment on the Nation by State, Fiscal Years 2009 and 2010
Year TotalTotal Rehab. National Economic Impacts Tax Impacts (2010 $ thousands) Costs (2010 $ millions) EMPLOYMENT 2010 $ MILLIONS LOCAL STATE FEDERAL TOTAL (JOBS) INCOME GDP OUTPUT
NJ $18.2 262 $12.9 $17.0 $34.6 $357.5 $538.7 $2,981.9 $3,878.1
NM $25.0 481 $17.7 $24.3 $47.2 $1,076.3 $1,062.8 $4,109.4 $6,248.5
NY $491.7 8,135 $350.4 $468.0 $925.3 $31,866.2 $26,999.1 $84,527.1 $143,392.3
NC $194.6 3,645 $137.0 $194.9 $364.4 $4,703.2 $6,802.4 $33,279.2 $44,784.8
ND $0.0 0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
OH $238.5 4,284 $169.8 $234.9 $452.8 $10,353.5 $8,723.3 $41,358.6 $60,435.4
OK $72.0 1,421 $51.3 $72.0 $137.6 $1,734.9 $2,505.3 $12,363.6 $16,603.8
OR $195.8 3,463 $142.1 $186.3 $381.1 $5,091.5 $6,861.3 $34,130.7 $46,083.4
PA $380.0 6,176 $275.8 $365.6 $740.9 $12,665.2 $10,740.4 $66,902.0 $90,307.7
RI $310.2 4,732 $211.6 $317.7 $558.0 $11,221.1 $9,812.4 $48,470.3 $69,503.7
SC $85.8 1,603 $59.5 $87.0 $156.7 $2,456.3 $2,752.6 $14,256.2 $19,465.1
SD $9.3 186 $6.5 $8.5 $17.3 $299.2 $174.6 $1,390.9 $1,864.6
TN $142.9 2,527 $100.2 $138.6 $266.3 $4,033.2 $3,061.2 $23,298.8 $30,393.2
TX $249.8 4,035 $180.9 $236.6 $489.2 $8,626.3 $4,955.9 $44,578.0 $58,160.1
UT $66.6 1,234 $46.7 $65.5 $123.7 $1,756.1 $2,220.5 $10,962.7 $14,939.3
VT $34.4 611 $24.9 $32.7 $66.0 $1,346.8 $1,697.5 $5,603.5 $8,647.8
VA $727.9 12,250 $520.9 $704.0 $1,386.9 $18,861.0 $24,448.2 $124,656.9 $167,966.1
WA $115.6 1,852 $82.9 $112.3 $222.1 $5,336.7 $4,178.9 $19,952.0 $29,467.6
WV $35.8 684 $24.8 $35.9 $65.2 $1,084.4 $1,251.3 $5,746.9 $8,082.6
WI $92.0 1,601 $65.2 $89.6 $172.8 $3,245.5 $3,704.7 $15,516.1 $22,466.3
WY $1.2 25 $0.9 $1.3 $2.4 $69.5 $44.3 $255.3 $369.1
TOTALS $8,812.2 145,149 $6,223.6 $8,418.6 $16,584.6 $392,266.2 $356,770.6 $1,469,051.7 $2,218,088.5
SOURCES: Department of the Interior, National Park Service, Technical Preservation Services; National Council of State Historic Preservation Offices; and calculations by Rutgers University
36 SECTION 1 | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
EXHIBIT 2.6 Summary of the Two-Year FY 2009 and 2010 Economic Impacts of Federal HTC Investment in Illinois, Missouri, and Pennsylvania
I: Illinois Rehabilitation II: Missouri III: Pennsylvania Using HTC—$216.3 Rehabilitation Using Rehabilitation Using million FY 2009 and HTC—$974.1 million FY Federal HTC—$380.0 2010 total rehabilitation 2009 and 2010 total million FY 2009 and costs results in: rehabilitation costs 2010 total rehabilitation Direct Effects results in: costs results in:
NATIONAL TOTAL (DIRECT AND MULTIPLIER) IMPACTS
National Jobs (person-years) 3,188 16,688 6,176
Total Impacts Income ($ million) 157.4 694.7 275.8 (Direct and Output ($ million) 422.3 1,1,852.0852.0 740.9 Multiplier) GDP* ($ million) 203.2 920.3 365.6
Taxes ($ million) 50.9 219.0 90.3 Federal ($ million) 37.9 161.3 66.9 State ($ million) 6.2 30.8 10.7 Local ($ million) 6.9 26.9 12.7
IN-STATE TOTAL (DIRECT AND MULTIPLIER) IMPACTS 1
St ate Portion Jobs (person-years) 2,429 12,417 4,803
of National Income ($ million) 122.4 522.6 216.4 Total Impacts Output (($$ million)million) 289.7 1,205.7 522.0
GSP* ($ million) 152.2 640.6 276.3
Taxes ($ million) 46.6 198.6 82.5 Federal ($ million) 35.8 152.8 63.1 State ($ million) 5.2 25.6 9.0 Local ($ million) 5.6 20.2 10.4
In-state wealth* 135.3 568.3 333.3 ($ million)
*GDP = Gross Domestic Product; GSP = Gross State Product; In-state wealth = GSP less federal taxes Note: Totals may differ from indicated subtotals because of rounding
SOURCES: Rutgers University, Center for Urban Policy Research, 2011
37 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | SECTION 1
EXHIBIT 2.7 Historic Tax Credits: State Programs
SOURCE: Novogradac and Company LLP
38 SECTION 1 | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
EXHIBIT 2.8 Kansas County Map of Costs of Projects Receiving State Tax Credits
LEGEND County Estimated Project Cost
• $11,468-$372,285
• $372,285-$1,063,507
• $1,063,507-$3,608,173
• $3,608,173-$8,463,874
• $8,463,874-$15,151,607
•$15,151,607-$22,926,185
•$22,926,185-$50,817,794
DATA SOURCE: U.S. Census 2009 TIGER/Line; Historic Preservation Office of the Kanses State Historical Society
39 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | SECTION 1
EXHIBIT 2.9 Selected Census Data for Overall State of Kansas and Areas with Kansas State Historic Tax Credits (KHTC)
Zip Codes and 2 0 0 0 Census Data
POPULATION
POPULATION / / / MINORITIES MEDIAN %% POVERTY UNEMPLOYED DENSITY (PER URBAN WHITE (NON-WHITE HOUSEHOLD SQUARE MILES & HISPANIC) INCOME
Total Kansas
Average of all zip 254.8 20.3 92.3 7.7 $37,338 10.3 3.4 codes in Kansas
KHTC Locations
Average of all zip 532.8 52.4 85.3 14.7 $34,085 12.8 5.3 codes with KHTC historic rehabilitation projects Average of top 10 800.0 81.2 70.7 29.3 $31,656 17.3 8.7 zip codes with KHTC historic rehabilitation projects
HOUSING UNITS
% RENTER MEDIAN HOUSING PAY MORE THAN PAY MORE THAN OCCUPIED HOUSING VALUES(ALL 30% OF INCOME FOR 30% OF INCOME FOR OWNER-OCCUPIED OWNER-OCCUPIED RENTAL HOUSING HOUSING
Total Kansas
Average of all zip 31.8 $60,534 13.7 25.5 codes in Kansas
KHTC Locations
Average of all zip codes with 30.4 $60,128 14.0 29.9 KHTC historic rehabilitation projects Average of top 10 zip codes 37.4 $61,020 15.9 36.6 with KHTC historic rehabilitation projects
SOURCE: Kansas Historic Tax Credit Database and Rutgers University analysis of Kansas Census (2000) data by zip code
40 SECTION 1 | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
EXHIBIT 2.10 Summary of Cumulative Investment and Benefits of the Kansas Historic Tax Credit
FY 2002-2009
Total (Direct and Multiplier) Impacts of the KHTC (Cumulative $271.0 million, FY 2002-2009)
Economic Benefits to Kansas
Jobs (person-years) 4,443 Income $141.6 million Output $323.2 million Gross state product $182.9 million Total taxes $56.2 million Federal taxes $41.4 million State & local taxes $14.8 million State-alone taxes $7.8 million In-state wealth (GSP less federal taxes) $141.5 million
Jobs and Income Benefits to Kansas by Economic Sector
JOBS INCOME Construction 2,003 $69.9 million Services 832 $27.3 million Retail trade 605 $8.7 million Manufacturing 500 $17.4 million Other Sectors 503 $18.3 million Total 4,443 $141.6 million
Gross State Product (Economic Value Added) Created Direct Rehabilitation by KHTC-Aided Rehabilitation Investment in Kansas ($271.0 million cumulative, FY 2002-2009)
$90
$80
$70
$60
$50
$40
$30
$20
STATE-ALONE $10 STATE- AND FEDERAL-COMBINED $0
AGRICULTURE MANUFACTURING FINANCE, INS. & REAL ESTATE I ARGI. SERV, FORESTRY, FISHING TRANSPORT & PUB. UTILITIES
MINING | WHOLESALE SERVICES I CONSTRUCTION I RETAIL TRADE GOVERNMENT
41
SECTION 2 Qualitative Impacts of the Federal Historic Tax Credit—Selected National Case Studies
Thus far the analysis has quantified the economic impacts of the federal HTC as esti- mated by the Rutgers Input-Output model (PEIM). Our review has also briefly exam- ined the important state historic tax credits. We get a further perspective on the feder- al and state HTC's impacts through qualitative case study analysis. The latter describe what transpired on a project by project basis and provide not only the local economic impacts, but additionally what the rehabilitation aided by the federal HTC has meant to local communities.
As part of the current investigation, five case studies were conducted. The five cases involved the rehabilitation of the:
• Mayo 420—Tulsa, Oklahoma • Maritime Building—New Orleans, Louisiana • Old Salem Jail—Salem, Massachusetts • Professional Arts Building—Baltimore, Maryland • Roosevelt-Lincoln Junior High School—Salina, Kansas
Each case study is organized is a parallel format that includes the following sections:
• Project summary • Property description • Project description • Project budget and sources of funding • Project results/impacts
We encourage the reader to browse all five case studies for they show the important preservation "facts on the ground" realized by the federal HTC. As a preview of the five cases, we offer the following synopsis.
The case studies point to how the federal HTC (as well as other allied programs) have helped foster the stabilization and revitalization of older yet important neighbor- hoods in various communities across the country and have encouraged adaptive reuse,
43 SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT | EXECUTIVE SYNTHESIS
sometimes with the added bonus of providing affordable housing. This year's featured projects include two large mixed-use (market rate housing, office and retail) projects, Mayo 420 in downtown Tulsa and Maritime Building in New Orleans' Central Business District. Also included is the Old Salem Jail in Salem, MA, the conversion of an early 19th century jail into market rate housing and a restaurant. The Professional Arts Build- ing in Baltimore's Mount Vernon neighborhood provides moderate income housing for graduate students and young professionals and includes a first-floor grocery and café. The Roosevelt-Lincoln Junior High School in Salina, KS was adaptively reused for low- income senior housing.
In the aggregate, the 5 projects had total costs of $112,718,926, ranging from about $8.6 million to about $36.5 million, with an average cost of $22.5 million.
Of the total project costs, rehabilitation and construction costs were most significant at $67.6 million, (59% of total), followed by soft and other costs, $33.0 million (29%), and finally acquisition costs, which were $12.0 million (11%). The sources of total project funds—$112.7 million—came from a variety of sources including $56.3 million in equity, $46.9 million in debt and $9.5 million from other sources. Tax credit assistance of various types is absolutely crucial for the financing A total of $42.5 million in equity came from various tax credits including federal of historic rehabilitation projects. and state HTCs and federal New Markets and Low-Income Housing Tax Credits. The developers contributed $13.9 million in equity. All of the five case studies "twinned" the federal Historic Tax Credit with either state HTCs, the LIHTC or the NMTC. Tax credit assistance of various types is absolutely crucial for the financing of historic rehabilita- tion projects.
Taking on debt was the second largest source of funding for these five case studies. Of the $46.9 million in debt, $27.5 million was acquired through banks, and $19.4 million through government loans or other sources.
In summary, successful rehabilitation projects are enabled by a layering of sources of funds and various subsidies, anchored by the federal historic and complementary credits.
44 SECTION 1 | SECOND ANNUAL REPORT ON THE ECONOMIC IMPACT OF THE FEDERAL HISTORIC TAX CREDIT
EXHIBIT 3.1 Summary of Costs and Funding Sources of Five Historic Rehabilitation Case Studies
Mayo 420 MaritimeMaritime Old Salem Professional Roosevelt- Total Building Jail Arts Lincoln
USES
Acquisition $1,399,000 $6,800,000 $160,000 $3,660,000 $2,500 $12,021,500
Rehabilitation $22,303,733 $16,639,999 $8,034,444 $14,028,643 $6,611,904 $67,618,723
Soft Costs $7,083,569 $13,094,461 $3,299,583 $7,575,891 $2,025,199 $33,078,703
Total Uses $30,786,302 $36,534,460 $11,494,027 $25,264,534 $8,639,603 $112,718,926
SOURCES
Bank Debt $8,700,000 - $4,915,000 $12,770,000 $1,100,000 $27,485,000
Non Conv. $3,000,000 $16,422,100 --$0 $19,422,100 Debt
Equity— $12,649,162 $12,111,980 $3,938,266 $6,466,224 $7,281,110 $42,446,742 Credits
Equity— $2,181,140 $6,950,380 $1,750,000 $3,022,832 $0 $13,904,352 Developer
Other $4,256,000 $1,050,000 $890,760 $3,005,479 $258,493 $9,460,732
Total Sources $30,786,302 $36,534,460 $11,494,026 $25,264,535 $8,639,603 $112,718,926
45
Case Studies
48 Mayo 420 Tulsa, Oklahoma
51 Maritime Building New Orleans, Louisiana
54 Old Salem Jail Salem, Massachusetts
58 Professional Arts Building Baltimore, Maryland
61 Roosevelt-Lincoln Junior High School Salina, Kansas CASE STUDY 1: MAYO 420
CASE STUDY: MAYO 420
PROJECT PROFILE
Current Name: Mayo 420 Historic Name: The Mayo Building Owner: Wiggin Properties, LLC, Tulsa, OK Construction date: 1909-1910 Date of Rehab: 2008-2010 Original Use: Office space and furniture business New Use: Mixed use; upper floor apartments and 35,000 square feet of retail and office space, including a YMCA fitness facility Federal Historic Tax Credits: $6,251,400 Total Project Costs: $30,786,302 Housing Units: 67 Incentives: Federal Historic Tax Credits Other Incentives: State historic and New Markets Tax Credits
The rehabilitation of the Mayo Building revitalized a storied Tulsa landmark that was nearly 100% vacant for almost 15 years. The project created 67 units of market rate loft housing, in keeping with the economic development objectives of the City of Tulsa to create housing downtown. YMCA of Greater Tulsa occupies approximately 24,000 square feet of the Mayo Building for its offices and a health club facility, ensuring that its programs to promote physical and emotional well-being are available to the diverse residents in the surrounding community.
48 Community Demographics
City of Tulsa Population in 2009: 389,625 Estimated Median Household Income in 2009: $38,426 Estimated Median House or Condo Value in 2009: $121,100
About the Property
The Mayo Building was completed in 1910 as a five-story commercial building that housed John and Cass Mayo's growing furniture business and offices in downtown Tulsa, just as the city was becoming the "oil capital of the world." At five stories tall, it was only the fourth building in Tulsa of this height. Subsequent construction in 1914 created a mirror image addition to the north, and five more stories were added in 1917. The Mayo Building is the oldest of Tulsa's remaining original oil business buildings and is the oldest office building in the city. It is one of a group of nine other office build- ings in the vicinity that reflect the city's dominant Art Deco architectural style. Wiggin Properties, LLC bought the property in 2006, rescuing it from a prolonged period of near total vacancy. The project, and other similar residential conversion development projects nearby, including the historic Mayo Hotel and the Philtower represent an im- portant evolution of downtown Tulsa, which by the early 2000s, had 40% of its land in use as surface parking lots.
Project Description Community Benefits Wiggin Properties, LLC has invested in a wide range of commercial projects in Oklahoma City > 308 construction jobs and Tulsa, valued at $72 million over the last five years. The architect was Kinslow, Keith & Todd, an > 75 permanent jobs architecture firm based in Tulsa that has experi- > $1.59 million in state and ence with more than 100 major projects. Wiggin local taxes Properties is also serving as general contractor and property manager. > $25.96 million in gross state product The scope of work involved replacement of all HVAC, mechanical, electrical and plumbing sys- tems, removal of non historic interior partition walls, dropped ceilings and other inap- propriate additions and replacement of damaged granite panels and the terra cotta cornice with in-kind materials. The historic trim and details in the lobbies and corridors were restored as were original door openings and tile and terrazzo floors.
49 CASE STUDY 1: MAYO 420
Project Budget
Uses Amount Acquisition $1,399,000 Rehabilitation Hard Costs $22,303,733 Soft Costs $1,233,179 Financing Costs $994,390 Reserves $300,000 Deferred Developer Fee $4,566,000 Total Development Cost $30,786,302
Funding Sources
Equity/debt from Historic $12,649,162 & New Markets Tax Credits Loan—Bank of Oklahoma $8,700,000 Loan—City of Tulsa's Vision 2025 $3,000,000 Managing Member Equity $2,181,140 Deferred Developer Fee: $4,256,000 Total Funding Sources $30,786,302
Results
The $31 million rehabilitation of the historic Mayo Building converts the property into 67 upper-floor apartments and approximately 35,000 square feet of nonprofit, restaurant and office space. The YMCA of Greater Tulsa is currently leasing 95% of the basement and lower two floors at below-market rent for its health club and offices. From this loca- tion, the YMCA operates its health and wellness programs, including those targeted at youth and at-risk populations. The creation of downtown housing is viewed as an impor- tant component of Tulsa's growth plan, and complements other downtown development projects, including the recently opened BOK Center, a 19,000 seat multi-purpose arena, and ONEOK Field, the new downtown ballpark. City views, polished concrete floors and original crown molding make for distinctive housing that provides residential tenants convenient access to shopping, dining and entertainment.
50 CASE STUDY 2: THE MARITIME BUILDING
CASE STUDY: The Maritime Building 800 Common Street, New Orleans, Louisiana
PROJECT PROFILE
Current Name: Maritime Building Historic Name: Originally named the Hennen Building, later called the Latter and Blum Building Construction date: 1893 Date of Rehab: 2010 Original Use: Commercial structure New Use: Mixed-use residential, office, retail Total Project Costs: $36,534,460 Federal Historic Tax Credit (HTC) Equity: $6,811,980 Housing Units: 105 market-rate residential units with 9,000 square feet of ground floor commercial space and 11,300 sf of second floor offices. Other Financial Incentives: State Historic Tax Credits, New Markets Tax Credits (NMTC), U.S. Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA)-insured loan
New Orleans' first skyscraper is located in the heart of downtown New Orleans, one block off of Canal Street, on the corner of Carondelet and Common Streets. Built in 1893 as the Hennen Building by Architect Thomas Sully and holding the title of the city's tallest build- ing from 1895-1904, this building has always been a first-class address with a rich history.
51 CASE STUDY 2: THE MARITIME BUILDING
s N Community Benefits
> 334 construction jobs About New Orleans > 366 permanent jobs Population in July 2009: 354,850 > $1.99 million in state Estimated median household income in 2009: $36,468 and local taxes Estimated median house or condo value in 2009: $192,600 > $24.94 million in gross state product About the Property
The Maritime building, damaged by and subsequently vacated after Hurricane Katrina when Latter & Blum Realtors Inc. moved to the Warehouse District, has gone through many major transformations in its 116-year history. In 1920, when Canal Bank & Trust Co. wanted to move into what had become the heart of the city's banking sector, the previ- ously symmetrical building was extended along Carondelet Street to make more room for the vaults. The second floor was modified to create elegant, arched windows befitting a bank lobby, and an observatory on top of the building that overlooked the river was enclosed to create an 11th floor. All the window bays on Carondelet have views of Bourbon Street because of the curve in the road. A Registered Historic Place, the building is locat- ed in the New Orleans Central Business District.
Project Description
The project involves the renovation of the historic property into 105 market-rate apartments, and 11,800 sf of retail and office space. The number of downtown rental residential dwelling units in New Orleans has declined over the past six to eight years, as many historic buildings have been converted from rentals to condominiums. This conversion process, combined with the destruction of tens of thousands of single and multifamily units throughout greater New Orleans by Hurricane Katrina, has created a shortage of rental housing.
Since the hurricanes of 2005, most developers have focused on mixed or low-income developments but few 100 percent market-rate projects have begun construction. Mari- time is only the fourth downtown market-rate residential development announced since the storm (two have been completed and construction on the third has just begun); all four projects total only 400 units.
The residential density in downtown New Orleans must increase dramatically because it is one of only a few areas in the city on higher ground. Additionally, the existing CBD condo- miniums and rentals need more amenities, such as grocery stores, pharmacies, banks and bookstores. The Maritime Building's ground floor will include a regional bank, a coffee and crepe cafe— both of which will support further downtown residential development. "New Orleans has a very tight, heavily walked downtown area, so this building is well-located," Wisznia says. "It's very close to major office buildings and one block to the French Quarter and all of its restaurants, cafes, theaters, museums- everything people seek in urban living."
52 Project Budget Uses Amount Acquisition $6,800,000 Rehabilitation Hard Costs $16,639,999 Soft Costs $4,796,249 Other Financing Costs $8,298,212 Total $36,534,460
Funding Sources
The Maritime Building project used an acquisition bridge loan from Wells Fargo Bank, which assisted in maintaining site control as the additional financing was arranged. Project financing consisted of equity from the state and federal NMTCs and HTCs described above and con- struction/permanent financing in the form of an FHA 221(d)(4) loan. Wells Fargo will also be the FHA lender. A local community bank, Omni Bank, is providing tax credit bridge financing.
FHA Mortgage $16,422,100 Federal HTC Equity $6,811,980 Louisiana HTC Equity $3,500,000 Federal NMTC $1,800,000 Deferred Architect and Developer Fees $1,050,000 Builder's Profit $1,919,464 Owners' Equity Contribution $5,030,916 Total $36,534,460
Results
The Maritime Building received permission from HUD to occupy the apartments in late November 2010, and the first tenant moved in on December 1st. Wisznia | Architecture + Development moved into its upper-floor office space in April of 2011. Hancock Bank con- tinued to occupy the majority of the ground floor throughout the renovation of the build- ing. The remaining small retail spaces are anticipated to be fully occupied by spring 2011. The Maritime project was the first FHA-insured mortgage transaction to utilize the "master lease pass-through" legal structure which maximizes the value of the federal HTC. "Mari- time has blazed a trail that will allow developers in other markets to turn their sights to- ward renovating beautiful historic buildings while still benefiting from the attractive terms offered by FHA mortgage financing - an especially important factor in a down economy and a tight credit environment where FHA financing is often the only game in town," said Edward Featherstone, Wisznia's vice president of development.
53 CASE STUDY 3: OLD SALEM JAIL
CASE STUDY: Old Salem Jail 50 St. Peter Street, Salem, Massachusetts
PROJECT PROFILE
Current Name: Salem Jail Complex Historic Name: Old Salem Jail Owner: Salem Redevelopment Authority Construction date: 1811-1813 Date of Rehab: 2006-2009 Original Use: Jail New Uses: Mixed-use Building Total Project Costs: $11,494,027 Federal Historic Tax Credit (HTC) Equity: $2,331,466 Residential Units Types: 23 one- and two-bedroom apartments Commercial Space: Restaurant and museum exhibit space
Other Incentives: State Historic Tax Credits
About Salem
Population in 2009: 41,361 Houses built before 1960: 12,753 Estimated Median Household Income in 2009: $60,642 Estimated Median House or Condo Value in 2009: $326,688
54 About the Property
The renowned Old Salem Jail, since rehabilitation known as the f Salem Jail Complex, is located at 50 St. Peter Street occupying Community Benefits a 1.12-acre site in downtown Salem, Massachusetts. The original property included an 1813 G o t h i c-style jail, and a three-story jail > 64 construction jobs keeper's house displaying the typical Federal period characteris- > 75 permanent jobs tics common in brick residences at that time. A third building was > $.58 million in state later constructed as a carriage house that had been previously and local taxes torn down due to poor condition. The main jail building housed captured British Soldiers from the War of 1812, held a total of > $8.34 million in 100 cells and during its use as a jail, and witnessed 50 hangings gross state product under its roof. Although never confirmed, the assumed builder of V the Jail was famous local architect, Samuel Field Mclntire, one of the earliest architects in the United States.
The Old Salem Jail had the reputation for being one of the most haunted sites in Salem. Urban explorers would use the location as a favorite spot for paranormal activity and luring peculiar behavior around the town. It was also known for being one of the oldest correctional facilities in the country, maintaining its original function until it was vacated in 1991.
In 1999, Historic Salem worked with the Massachusetts Historical Commission to pro- vide pro bono architectural and engineering services to repair damages from a massive fire. Later that year the site was given to the City of Salem. The Old Salem Jail con- tinued to remain undeveloped, amplifying the dilapidated appearance it had acquired over the years. This resulted in the property's listing on both the Historic Salem and Preservation Massachusetts Most Endangered Resources Lists. These listings furthered the impetus for historic rehabilitation.
Project Description
In 2004, the Old Salem Jail was established as a top preservation priority in terms of redevelopment, thus, initiating a transfer in ownership from the City of Salem to the Salem Redevelopment Authority (SRA). Site control by SRA allowed residents of greater Salem, in addition representatives of interested boards and commissions, to voice opinions throughout the planning process.
The City of Salem and SRA planned the adaptive reuse utilizing thorough research conducted by highly qualified teams. After extensive studies were performed to sup- port the need for rehabilitation and a competitive selection process was completed, New Boston Ventures, a Boston-based developer that specializes in historic buildings, was welcomed to the team.
55 CASE STUDY 3: OLD SALEM JAIL
New Boston Ventures' vision was to restore the Old Salem Jail and create a mixed- use building consisting of residential units, a restaurant and a museum to provide a glimpse of the jail's infamous history.
Project Budget
The articulated budget displays the benefits of utilizing the state Historic Tax Credit system. With over 96% of the total costs being eligible for a historic tax credit, and having a state tax credit of 20%, the award earned for the project was just over 2.3 million.
Uses Amount Acquisition $160,000 Construction Hard Costs $8,034,444 Soft Costs $1,077,140 Financing Costs $234,220 Operating Reserves $240,320 Developer Fee $1,747,903 Total Development Costs $11,494,027
Project Funding
Of the funds that the Old Salem Jail rehabilitation was provided, the Historic Tax Credits are the most notable. The project was able to generate over 2.3 million in federal equity and 1.6 million in state equity, totaling 3.9 million, which was 34% of the total cost of the budget.
56 Source of Funds Permanent Amount Citizens Bank Construction/ $4,915,000 Mini-perm loan Federal Historic Tax Credit Equity $2,331,466 Massachusetts State Historic $1,606,800 Tax Credit Equity Managing Member Equity $1,750,000 Developer Fee $890,760 Total Sources $11,494,026
Project Results
The ribbon cutting ceremony for the renovated Salem Jail Complex was celebrated in May of 2010 showcasing the 1813 jail, the jail master's house and a new building that re- placed the carriage house. Each unit is unique, especially those within the old jailhouse which have windows that extend from the ceiling to floor and cathedral ceilings up to 18 feet high. On each entry door hangs one of the jail's original cell doors. The public museum that was added to the property displays historic material that was not reused as part of the rehab and artifacts from original jail cells. The Great Escape Restaurant is designed with a jail theme featuring brick walls, the original two-foot thick granite floor, a bar made out of recycled cell doors, and cell bars all around.
As a result of its creative reuse plan, the Salem Jail Complex was honored with a Timmy Award under the Best Mixed-Income or Market-Rate Residential category. The Timmy Awards, created by the National Housing and Rehabilitation Association as a tribute to Boston architect and preservation advocate J. Timothy Anderson, honor out- standing rehabilitation and preservation projects based on overall design and quality, interpretation and respect of historic elements, impact on the community, and financial and market success.
"Historic Salem supported the revitalization of the Old Salem Jail with the understanding that the use of federal and state credits was a reasonable and creative solution to difficult economic realities." Historic Salem Inc
57 CASE STUDY 4: PROFESSIONAL ARTS BUILDING
CASE STUDY: Professional Arts Building 101 West Read Street, Baltimore, Maryland
PROJECT PROFILE
Current Name: Professional Arts Building Historic Name: Medical Arts Building Construction date: 1927 Date of Rehab: 2009 Original Use: Professional office space New Use: Residential, retail Total Project Costs: $25,264,534 Federal Historic Tax Credit (HTC) Equity: $4,497,496 Housing Units: 96 Other Incentives: State Historic Tax Credits
About the Property
Originally constructed as the "Medical Arts Building" in 1927, the Professional Arts Build- ing at 101 West Read Street served as offices for medical professionals until it saw a decline in occupancy in the 1990s. The large 110,000 square foot (sf) building was left more than seventy-five percent vacant for a decade prior to its rehabilitation in 2009. Featured restoration work included repairing an original terra cotta balustrade, refurbish- ing the first-floor and elevator lobbies and restoring the storefront on Cathedral Street.
58 The Project is located in the Mt. Vernon neighborhood of Baltimore, MD. Mt. Vernon is an emerging, historic, mixed-use area just north of the central business district (CBD) that is home to many of the city's major cultural institutions and attractions including the Walters Art Museum, Maryland Institute College of Art, Meyerhoff Symphony Hall, the Lyric Opera and the Peabody Institute.
Also nearby is State Center, three large State of Maryland office buildings that house numerous state agencies. The area has experienced a substantial amount of residential de- velopment in the past five years, including the renovation of a number of historic buildings.
About Baltimore
Population in July 2009: 637,418 Estimated median household income in 2009: $38,772 Estimated median house or condo value in 2009: $168,400
Project Description f Community Benefits The project involves the conversion of the property into 96 apartments, 1,709 sf of ground floor retail space along Cathedral > 171 construction jobs Street, rental storage units, a fitness center and a community > 191 permanent jobs room. There are 14 studios, 49 one-bedroom/one-baths, 8 one- bedroom plus dens, and 25 two-bedroom/two-bath units. The > $1.36 million in state project has priced 100% of the units to be affordable to house- and local taxes holds earning between 80% and 120% of area median income, > $17.15 million in well above the 10% set aside required under the new inclusionary gross state product zoning provisions of the Mount Vernon Urban Renewal Plan. v j
Project Budget
Uses Amount Acquisition $3,660,000 Rehabilitation Hard Costs $14,028,643 Soft Costs $1,648,444 Financing Costs $1,542,334 Reserves $941,229 Developer Fee $3,443,884 Total $25,264,534
59 CASE STUDY 4: PROFESSIONAL ARTS BUILDING
Funding
Union Bank of California provided a $12.77 million construction and mini-perm loan, and an equity bridge loan of $4.67 million. The perm loan is for 5 years at a rate to be fixed upon maturity of the construction loan. Somerset Development purchased an interest rate buy-down with the projected rate of 5.89%. The developer and several cash investors have provided about $3 million in equity. Citigroup was the investor in the federal Historic Tax Credits. Old Mutual Financial Network, an insurance company headquartered in Baltimore, provided equity in exchange for the use of the Maryland state Historic Tax Credits.
Funding Sources
Loan—Union Bank of California $12,770,000 Old Mutual Financial Network $1,968,228 (State Investor) Managing Member Equity $3,022,832 Equity from Federal HTC and $4,497,996 Deferred Developer Fee $3,005,479 Total $25,264,534
Results
Mayor Sheila Dixon and Congressman Elijah Cummings officiated at the ribbon cutting on June 29, 2009, along with many other dignitaries, residents, and neighbors. As of November 2010, 95% of the units were occupied. The ground-floor commercial space is leased to Milk and Honey Market Cafe, a locally-owned food market, coffee shop and cafe. The market features locally and regionally sourced meats, artisanal cheeses, produce, fresh baked breads, fresh pastas and fresh squeezed juices. The successful rehabilitation of the Professional Arts Building earned a "2010 Historic Preservation Award" from Baltimore Heritage.
60 CASE STUDY 5: ROOSEVELT-LINCOLN JUNIOR HIGH SCHOOL
CASE STUDY: Roosevelt-Lincoln Junior High School 210 W. Mulberry St., Salina, Kansas
PROJECT PROFILE
Current Name: Pioneer President's Place Historic Name: Roosevelt-Lincoln Junior High School Owner: Pioneer Group, Topeka, KS Construction date: 1915-1925 Date of Rehab: 2005-2006 Original Use: Public Schools New Use: Low-Income Senior Housing Total Project Costs: $8,639,603 State Historic Tax Credits: $2,042,886 Housing Units: 61 (Rents start at $275/month.) Incentives: State and Federal Historic Tax Credits, Low Income Housing Tax Credits, Property Tax Rebate for 10 years.
This rehabilitation project converted recently vacated public schools in downtown Salina into low-income senior apartments. The 61-unit complex routinely boasts a 100% occupancy rate, and a property once described by the local newspaper as having the potential to become "a conspicuous downtown eyesore" is now an architectural gem in the center of the community.
61 CASE STUDY 5: ROOSEVELT-LINCOLN JUNIOR HIGH SCHOOL
About Salina
Population in 2008: 46,483 Estimated Median Household Income in 2008: $40,848 Estimated Median House or Condo Value in 2008: $119,119
About the Property
The Roosevelt Lincoln Junior High School Campus occupies most of a city block in downtown Salina. The property is listed in the National Register of Historic Places for its significance in the areas of Education and Architecture. The school buildings on the property today date to the first part of the 20th century. Lincoln School occupies the north end of the complex, and Roosevelt School sits to the south. Lincoln School was built 1915-1917, and Roosevelt School was completed in 1925.
As is often the case with public schools, enrollment even- Community Benefits tually outstripped the original capacity, and the buildings were expanded several times over the years. By the late > Potential eyesore close to 1970s, a pair of large blond brick structures had been built downtown converted to in the courtyard between the buildings, and a low enclosed clean safe senior housing. walkway connected the south door of Lincoln School with > More than $3.5 million in the modern buildings in the courtyard. They were practical construction wages during additions, but unsympathetic to the historic architecture. the project. Even with the additions, the school district eventually out- > More than $2 million spent grew the property, and the last classes were held there in with Kansas companies for the 2002-2003 school year. Salina was left with an archi- construction materials. tectural white elephant in the core of the community. > Increased property values in the neighborhood. In the interest of seeing the buildings restored and returned to use, the Salina School board conducted a careful search for parties who might be interested in redeveloping the property. After a competitive bidding process, Pioneer Group of Topeka was given the right to buy the vacant com- plex and convert the property to low-income senior housing.
62 Project Description
Pioneer assembled an expert team of Kansas-based professionals, which included Treanor Architects and General Contractor J. E. Dunn, both of Topeka, and Sunflower Bank of Salina provided construction financing. In addition to following the many re- quirements associated with Low Income and Historic Tax Credits, the team met na- tionally recognized LEED green building standards. Just over $3.5 million was paid in construction wages alone, and another $2.3 million went to Kansas suppliers of build- ing materials. The developer and all of the professionals involved are based in Kansas.
Project Budget
Uses Amounts Acquisition $2,500 Rehabilitation Costs $6,611,904 LEED Certification $255,000 Architectural and Engineering Fees $515,176 Construction Period Interest, $127,176 Insurance, & Real Estate Taxes Financing Costs $128,139 Soft Costs $999,708 TOTAL $8,639,603
Among the local dignitaries and interested parties to attend the ribbon-cutting in 2006 was retired City Manager Frank Kissinger, who spent many hours as city man- ager ensuring that the project would work. Also attending was Lois Smith-Roby, who attended Lincoln School in the 1940s. Her opinion of the rehab was included in the front-page article announcing the completion of the project. One can assume that her sentiments were shared with many: "I think it's wonderful."
Funding
With total project costs exceeding $8.5 million and monthly rents starting at $275, a variety of funding sources were needed to make sure the completed project was fi- nancially feasible. Fortunately, the developers were able to qualify for state and federal HTCs, as well as Low Income Housing Tax Credits. As the budget shows, all of those sources were needed to make the project viable. Without any one of them, the build- ings could well be empty yet today.
63 CASE STUDY 5: ROOSEVELT-LINCOLN JUNIOR HIGH SCHOOL
Funding Sources
Deferred Developer Fee $258,493 Equity from Low-Income $4,374,083 Housing Tax Credits @ $0.85 Equity from Federal and State HTCs $2,907,027 Tax Credits @ $0.86 & $0.73 Permanent Financing (7.5%, 30 YRS) $1,100,000 Total Funding Sources $8,639,603
Results
This project is already breathing more life into Salina's downtown, supporting existing businesses and encouraging new business creation. The restored auditorium at Lincoln School, open to both residents and the general public, is developing into a favorite community gathering space. The complex routinely has an occupancy rate of 100%. It has also given a boost to the owners of surrounding rental properties, who have en- joyed an improved overall rental market due to the presence of this large, well-main- tained complex.
Ross Freeman, President of Pioneer Group, the developer for Pioneer Presidents' Place, noted, "This was a wonderful economic development project for Kansas. It employed a huge number of Kansans, and generated a lot of economic excitement in and around Salina. It also utilized existing infrastructure and has brought more people to live in the downtown area, helping further revitalize downtown businesses. We would not have even considered the project if the historic tax credits were not available."
In addition to saving the historic buildings and creating clean, safe senior housing, the rehabilitation project injected more than $8 million directly into the Kansas economy. All of that money was spent before any historic tax credits were issued.
This case study is extracted from a study by Rutgers University that was prepared for the Kansas Preservation Alliance that was released in March 2010—Economic Benefits and Impact of Historic Preservation in Kansas. The Salina case study was prepared by Deb Sheals, historic preservation consultant, Columbia, MO.
64
The Historic Tax Credit Coalition Michael Hanson email: [email protected] P 202.567.2905 F 202.393.7887 Liberty Place 325 7th Street NW Suite 400 Washington, DC 20004
.((Ji^lMI^Ä National Trust I RUTGERS COMMUNITY INVESTMENT Edward J. Bloustein School of Planning and Public Policy Corporation Rutgers, The State University of New Jersey a subsidiary of Civic Square Building NATIONAL TRUST FOR 33 Livingston Avenue HISTORIC PRESERVATION' New Brunswick, NJ 08901 732-932-5475 1785 Massachusetts Avenue, NW Web: policy.rutgers.edu Washington, DC 20036 Email: [email protected] www.NTCIC.com